UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
☒ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2021
OR
☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ____ to ____
Commission file number: 001-38861
GUARDION HEALTH SCIENCES, INC.
(Exact name of registrant as specified in its charter)
Delaware
(State or jurisdiction of
incorporation or organization)
2925 Richmond Avenue, Suite 1200, Houston, TX
(Address of principal executive offices)
47-4428421
(I.R.S. Employer
Identification No.)
77098
(Zip code)
Securities registered pursuant to Section 12(b) of the Act:
800-873-5141
(Registrant’s telephone number, including area code)
Title of each class
Common Stock, par value $0.001 per share
Trading Symbol(s)
GHSI
Name of each exchange on which registered
The Nasdaq Stock Market LLC
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act ☐ Yes ☒ No
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. ☐ Yes ☒ No
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or Section 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. ☒ Yes ☐ No
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of
Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post
such files). ☒ Yes ☐ No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an
emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer”, “smaller reporting company”, and “emerging growth
company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer
Non-accelerated filer
☐
☒
Accelerated filer
Smaller reporting company
Emerging growth company
☐
☒
☒
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new
or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control
over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or
issued its audit report. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). ☐ Yes ☒ No
On June 30, 2021, the last business day of the registrant’s most recently completed second fiscal quarter, the aggregate market value of the voting and non-
voting common equity held by non-affiliates of the registrant was approximately $41.8 million based upon the closing price of the registrant’s common
stock of $1.76 on The Nasdaq Capital Market as of that date.
As of March 25, 2022, there were 61,426,993 shares of the registrant’s common stock, par value $0.001 per share, issued and outstanding.
Documents Incorporated by Reference:
Portions of the registrant’s definitive proxy statement relating to its 2022 annual meeting of stockholders (the “2022 Proxy Statement”) are incorporated by
reference into Part III of this Annual Report on Form 10-K where indicated. The 2022 Proxy Statement will be filed with the U.S. Securities and Exchange
Commission within 120 days after the end of the fiscal year to which this report relates.
TABLE OF CONTENTS
PART I
BUSINESS
ITEM 1.
ITEM 1A. RISK FACTORS
ITEM 1B. UNRESOLVED STAFF COMMENTS
ITEM 2.
ITEM 3.
ITEM 4.
PROPERTIES
LEGAL PROCEEDINGS
MINE SAFETY DISCLOSURES
PART II
ITEM 5.
MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER
PURCHASES OF EQUITY SECURITIES
[RESERVED]
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
ITEM 6.
ITEM 7.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
ITEM 8.
ITEM 9.
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE
ITEM 9A. CONTROLS AND PROCEDURES
ITEM 9B. OTHER INFORMATION
ITEM 9C. DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS
PART III
ITEM 10.
ITEM 11.
ITEM 12.
ITEM 13.
ITEM 14.
DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
EXECUTIVE COMPENSATION
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED
STOCKHOLDER MATTERS
CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS AND DIRECTOR INDEPENDENCE
PRINCIPAL ACCOUNTANT FEES AND SERVICES
PART IV
ITEM 15.
ITEM 16.
EXHIBIT AND FINANCIAL STATEMENT SCHEDULES
FORM 10-K SUMMARY
SIGNATURES
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FORWARD LOOKING STATEMENTS
This Annual Report on Form 10-K for the fiscal year ended December 31, 2021 contains “forward-looking statements” within the meaning of the Securities
Act of 1933, as amended (the “Securities Act”), and the Securities Exchange Act of 1934, as amended (the “Exchange Act”). These forward-looking
statements contain information about our expectations, beliefs or intentions regarding our product development and commercialization efforts, business,
financial condition, results of operations, strategies or prospects, and other similar matters. These forward-looking statements are based on management’s
current expectations and assumptions about future events, which are inherently subject to uncertainties, risks and changes in circumstances that are difficult
to predict. These statements may be identified by words such as, “expects,” “plans,” “projects,” “will,” “may,” “anticipates,” “believes,” “should,”
“intends,” “estimates,” and other words of similar meaning.
Actual results could differ materially from those contained in forward-looking statements. Many factors could cause actual results to differ materially from
those in forward-looking statements, including those matters discussed below, as well as those listed in Item 1A. “Risk Factors”.
Other unknown or unpredictable factors that could also adversely affect our business, financial condition and results of operations may arise from time to
time. In addition, we cannot assess the impact of each factor on our business or the extent to which any factor, or combination of factors, may cause actual
results to differ materially from those contained in any forward-looking statements. Given these risks and uncertainties, the forward-looking statements
discussed in this Annual Report on Form 10-K may not prove to be accurate. Accordingly, you should not place undue reliance on these forward-looking
statements, which only reflect the views of the Company’s management as of the date of this Annual Report on Form 10-K. We undertake no obligation to
update or revise forward-looking statements to reflect changed assumptions, the occurrence of unanticipated events or changes to future operating results or
expectations, except as required by law. We qualify all of the information presented in this Annual Report on Form 10-K, and particularly our forward-
looking statements, by these cautionary statements.
RISK FACTOR SUMMARY
Our business is subject to significant risks and uncertainties that make an investment in us speculative and risky. Below we summarize what we believe are
the principal risk factors, but these risks are not the only ones we face, and you should carefully review and consider the full discussion of our risk factors
in the section titled “Risk Factors”, together with the other information in this Annual Report on Form 10-K. If any of the following risks actually occurs
(or if any of those listed elsewhere in this Annual Report on Form 10-K occur), our business, reputation, financial condition, results of operations, revenue,
and future prospects could be seriously harmed. Additional risks and uncertainties that we are unaware of, or that we currently believe are not material,
may also become important factors that adversely affect our business.
Risks Related to the Company’s Business
● As the Company has incurred recurring losses and negative cash flows since its inception, there is no assurance that the Company will be able to
reach and sustain profitability.
● The COVID-19 global pandemic has and may continue to adversely impact the Company’s business.
● Inflationary pressure may adversely impact the Company’s business.
● The Company has limited experience in developing dietary supplements and medical foods and it may be unable to commercialize some of the
products it develops or acquires.
● The Company’s investment in new businesses and new products, services, and technologies is inherently risky, and could disrupt its current
operations.
● The Company may not succeed in establishing and maintaining collaborative relationships, which may significantly limit its ability to develop and
commercialize its products successfully, if at all.
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● Competitors may develop products similar to the Company’s products, and the Company may therefore need to modify or alter its business
strategy, which may have a material adverse effect on the Company.
● If the Company is unable to develop its own sales, marketing and distribution capabilities, or if it is not successful in contracting with third parties
for these services on favorable terms, or at all, revenues from product sales could be limited.
● Product liability lawsuits against the Company could divert its resources and could cause it to incur substantial liabilities and limit
commercialization of its products.
● Manufacturing risks and inefficiencies may adversely affect the Company’s ability to produce products.
● The Company’s billings and revenues are derived from a limited number of customers and the loss of any one or more of them may have an
immediate adverse effect on its financial results.
● The Company’s acquisition strategy involves a number of risks.
● The Company’s business depends on its intellectual property rights, and if it unable to protect them, its competitive position may suffer.
Risks Related to the Company’s Acquisition of Activ Nutritional, LLC (“Activ”)
● Integrating Activ’s business with the Company’s business may be more difficult, costly, or time-consuming than expected, and the Company may
not realize the expected benefits of its acquisition of Activ, which may adversely affect the Company’s business, financial condition, and results of
operations.
Risks Related to Government Regulations
● The Company and its suppliers and manufacturers are subject to a number of existing laws, regulations and industry initiatives and the regulatory
environment of the healthcare industry is continuing to change. If it is determined that the Company or its suppliers or manufacturers are not in
compliance with the laws and regulations to which they are respectively subject, the Company’s business, financial condition and results of
operations may be adversely affected.
● The Company’s products may cause undesirable side effects or have other properties that could delay or prevent any required regulatory approval,
limit the commercial potential or result in significant negative consequences following any potential marketing approval, or result in a product
recall that could harm the Company’s reputation, business and financial results.
Risks Related to the Company’s Common Stock
● The Company received a written notice from Nasdaq that it has failed to comply with certain listing requirements of the Nasdaq Stock Market,
which could result in the Company’s being delisted from the Nasdaq Stock Market.
● The Company does not intend to pay cash dividends to its stockholders, so you may not receive any return on your investment in the Company
prior to selling your interest in the Company.
● The Company may require additional capital in the future to support its operations, and this capital has not always been readily available.
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ITEM 1. BUSINESS
PART I
Throughout this Annual Report on Form 10-K, the terms “we,” “us,” “our,” “our company,” “Guardion” the “Company” and the “Registrant” refer to
Guardion Health Sciences, Inc. and its consolidated subsidiaries.
Overview
We are a clinical nutrition company that develops and distributes clinically supported nutrition, including foods and dietary supplements. We offer a
portfolio of science-based, clinically supported products designed to support consumers in achieving their health goals.
Our profile and focus fundamentally changed with the acquisition of Activ Nutritional, LLC (“Activ” or “Viactiv” as the context requires) in June 2021, the
owner and distributor of the Viactiv® line of supplements for bone health, immune health and other applications.
The acquisition and integration of the Viactiv line of products has changed our financial position, market profile and brand focus, and has also expanded
our search for additional business opportunities in the short-term, both internal and external.
We believe the Activ acquisition added valuable attributes, including (1) Viactiv’s brand awareness and acceptance from the consumer; (2) experienced
management; (3) established distribution networks and relationships; (4) product development potential; and (5) a long track record of revenue growth and
profitability.
● Brand awareness – Viactiv was initially launched by industry leaders Mead Johnson/Johnson & Johnson approximately twenty years ago, and we
believe this history, along with the product’s marketing campaigns, taste profile and receipt of consistently positive consumer reviews, have led to
strong consumer awareness and acceptance.
● Experienced management – As part of the Activ acquisition, we appointed Craig Sheehan as our Chief Commercial Officer. Mr. Sheehan was the
senior executive responsible for the Viactiv brand as a member of the executive leadership team of Adare Pharmaceuticals, Inc. (“Adare”), the
previous owner of Viactiv.
● Established distribution – Viactiv’s products are currently marketed through many of the nation’s largest retailers, including, among others,
Walmart (retail and online), Target, CVS and Amazon.
● Track record of profitability – Viactiv generated net revenues of approximately $11,900,000 and operating income of approximately $1,200,000 in
the year-ended December 31, 2020. For the year ended December 31, 2021, on a pro forma basis and assuming Viactiv was owned by the
Company for the entire year, our total revenues would have been $12,765,911 and the Viactiv products would have accounted for 96% of our pro
forma total revenues for the period. We expect the acquisition of Viactiv to contribute increasing revenue and consistent operating margins and
profitability, as well as a multitude of growth opportunities, to our Company.
Acquisition of Activ Nutritional, LLC
On June 1, 2021, we completed our acquisition of Activ. The acquisition was made pursuant to an Equity Purchase Agreement, dated May 18, 2021,
between us, Adare and Activ. We acquired all of the issued and outstanding equity of Activ from Adare for $26 million in cash, subject to certain
adjustments as provided in the Equity Purchase Agreement.
Activ owns the Viactiv® line of supplement chews for bone health, immune health and other applications which are currently marketed through many of
the nation’s largest retailers, including, among others, Walmart (retail and online), Target and Amazon. The Viactiv product lines will be our most
prominent product lines for the foreseeable future absent any additional significant acquisitions.
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Recent Developments
Equity Distribution Agreement
On January 28, 2022, we entered into an Equity Distribution Agreement (the “Sales Agreement”) with Maxim Group LLC, and Roth Capital Partners LLC
as co-agents (collectively, the “Agents”), pursuant to which we may offer and sell, from time to time through the Agents, shares of our common stock
having an aggregate offering price of up to $25,000,000 in one or more at-the-market offerings. As of March 25, 2022, we have not sold any shares of our
common stock pursuant to the Sales Agreement. As a result of the February Offering (described below), we are restricted from utilizing the at-the-market
offering for a period of time.
February 2022 Securities Offering
On February 18, 2022, we entered into a Securities Purchase Agreement with certain institutional investors, pursuant to which we issued and sold, in a
best-efforts offering by the Company (the “February Offering”), (i) 32,550,000 units, priced at an offering price of $0.30 per unit, with each unit consisting
of one share of our common stock, one warrant to purchase one share of our common stock at an exercise price of $0.37 per share that expires on the fifth
anniversary of the date of issuance (“Series A Warrant”) and one warrant to purchase one share of our common stock at an exercise price of $0.37 per share
that expires on the eighteen month anniversary of the date of issuance ( “Series B Warrant”), and (ii) 4,450,000 pre-funded units, priced at an offering price
of $0.2999 per unit, with each unit consisting of one pre-funded warrant to purchase one share of our common stock at an exercise price of $0.0001 per
share that is exercisable at any time after issuance until exercised in full (a “Pre-Funded Warrant” and together with the Series A Warrants and Series B
Warrants, the “Warrants”), one Series A Warrant and one Series B Warrant.
On February 18, 2022, we entered into a Placement Agency Agreement (the “Placement Agency Agreement”) with the Agents pursuant to which we paid
the Agents an aggregate fee equal to 7.0% of the gross proceeds from the units sold in the February Offering and reimbursed the Agents $100,000 for
expenses incurred in connection with the February Offering. In addition, we issued Roth warrants (the “Placement Agent Warrants”) to purchase up to
1,850,000 shares of our common stock exercisable at an exercise price of $0.37 per share. The Placement Agent Warrants will be exercisable immediately
and expire on the fifth anniversary of the date of the issuance.
On February 23, 2022, we closed the February Offering, and issued (i) 32,550,000 shares of common stock, (ii) Series A Warrants to purchase 37,000,000
shares of common stock, (iii) Series B Warrants to purchase 37,000,000 shares of common stock, and (iv) Pre-Funded Warrants to purchase 4,450,000
shares of common stock. The net proceeds from the February Offering, after deducting the placement agent fees and estimated offering expenses payable
by us were approximately $10.0 million. In the event that the Company fails to deliver shares by the required delivery date upon exercise of the warrants,
the Company may be subject to cash penalties in an amount up to $20 per trading day for each $1,000 of warrant shares until such shares are delivered. In
addition, if the warrant holder purchases shares in the market following the Company’s failure to deliver shares upon exercise of the warrants, the Company
will be required to cover the cost of any buy-ins and, at the option of the warrant holder, either reinstate the portion of the warrant for the shares that were
not delivered or deliver the number of shares that should have been issued.
In connection with the February Offering, we and our executive officers and directors entered into lock-up agreements providing that we and each of our
executive officers and directors, subject to limited exceptions, may not offer, sell, transfer or otherwise dispose of our Company’s securities for a period of
(i) 90 days for executive officers and directors and (ii) 120 days for our Company following the February Offering, without the prior written approval of
Roth (and in the case of our Company lockup, Roth and the investors party to the Securities Purchase Agreement).
In addition, until the 18 month anniversary of the February Offering, we are prohibited from entering into a variable rate transaction (as defined in the
Securities Purchase Agreement), provided, however, we will be permitted to utilize the at-the-market offering facility, described above, commencing 120
days following the closing of the February Offering.
On February 18, 2022, we entered into a warrant agency agreement with our transfer agent, VStock Transfer, LLC, who will also act as our warrant agent,
setting forth the terms and conditions of the Series A Warrants and Series B Warrants sold in the February Offering.
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Product Offerings
Our product profile and focus fundamentally changed with the acquisition of Activ in June 2021, the owner and distributor of the Viactiv® line of
supplements for bone health, immune health and other applications. In 2021, sales of the Viactiv line of supplements represented approximately 90% of our
consolidated net sales. The Viactiv line of supplements contains several flavored nutritional supplement products, but the milk chocolate and caramel
flavored calcium chews constitute the main product category.
Viactiv was first introduced to the market over 20 years ago as a calcium-fortified soft chew intended to deliver clinical nutrition to women in a way that is
enjoyable to taste and easy to consume. Since the original chocolatey-chew, multiple chews have been introduced, each delivering nutrition to help
consumers maintain health goals, such as strong bones and immune support. Viactiv is regulated in the U.S. as a dietary supplement.
We also sell Lumega-Z, our medical food product that has a formula designed to replenish and restore the macular protective pigment, simultaneously
delivering critical and essential nutrients to the eye. The current formulation has been delivered to patients and used in clinics since 2019.
As a medical food, Lumega-Z must be administered under the supervision of a physician or professional healthcare provider. We also use a variety of
marketing strategies to increase awareness of Lumega-Z among ophthalmologists and optometrists. We also market Lumega-Z through direct-to-consumer
strategies such as social media and paid search advertising.
In 2020, two peer-review scientific articles were published demonstrating the beneficial efficacy of Lumega-Z®. Both articles were published in the journal
Nutrients. The first published study assessed the level of absorption of the carotenoids in Lumega-Z compared to absorption of the carotenoids in the
industry leading eye vitamin, PreserVisionTM (AREDS 2 formula sold by Bausch and Lomb), and determined whether an elevated level of carotenoid
absorption leads to increased macular pigment optical density (“MPOD”). The study found that despite only a 2.3-fold higher carotenoid concentration than
PreserVisionTM, Lumega-Z supplementation provides approximately 3–4-fold higher absorption, which leads to a significant elevation of MPOD levels.
The second study evaluated the visual benefits in a group of patients taking Lumega-Z compared to a group of patients taking AREDS 2 (PreserVisionTM)
soft gel supplements, as well as a third control group that were ocular normals taking no supplements. Each study participant had retinal drusen, delayed
dark adaptation recovery time and was at risk of developing vision loss from age-related macular degeneration (“AMD”). The results showed significant
improvements in visual function, as measured by contrast sensitivity, in the group of patients taking Lumega-Z. The patients taking PreserVisionTM showed
a trend toward an improvement, but no statistical change, while the control group showed no change.
GlaucoCetin, also currently considered a medical food, offers a formula that is designed to support proper mitochondrial function in the optic nerve cells in
glaucoma patients. Loss of optic nerve cells is thought to be the primary cause of vision loss in glaucoma patients. Like Lumega-Z, we market GlaucoCetin
through direct-to-consumer strategies such as social media and paid search advertising. We also use a variety of marketing strategies to increase awareness
of GlaucoCetin among ophthalmologists and optometrists.
We distribute Lumega-Z and GlaucoCetin through E-commerce, in an online store that is operated at www.guardionhealth.com, and we intend to expand
our E-commerce capabilities in 2022.
Prior Product Offerings
Nutriguard: We had marketed a brand of dietary supplement products under the NutriGuard brand, which we acquired in 2019, but decided to stop
marketing the brand after acquiring the Viactiv line of supplements in June of 2021. ImmuneSF, a unique proprietary nutraceutical formulation designed to
support and maintain an effective immune system was the first product developed after the acquisition of NutriGuard. This formulation contained a
synergistic blend of antioxidant and anti-inflammatory nutrients. While we still intend to build a portfolio of nutraceutical products, we plan to launch such
products under the Viactiv brand rather than the NutriGuard brand.
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VectorVision, CSV-1000 and CSV-2000: In September 2017, we, through our wholly owned subsidiary VectorVision Ocular Health, Inc., acquired
VectorVision, Inc. (“VectorVision”), a company that specialized in the standardization of contrast sensitivity, glare sensitivity, low contrast acuity, and early
treatment diabetic retinopathy study visual acuity testing. VectorVision’s standardization system is designed to provide the practitioner or researcher with
the ability to delineate very small changes in visual capability, either as compared to the population or from visit to visit. VectorVision developed,
manufactured and sold equipment and supplies for standardized vision testing for use by eye doctors in clinics, for researchers to use in clinical trials, for
real-world vision evaluation, and industrial vision testing.
During December 2021, as part of management’s comprehensive evaluation of our Company’s business and in order to focus on those brands and lines of
business that management believes provide the greatest growth opportunities, we determined to restructure the operations of our VectorVision business. We
are completing the process of substantially winding down the day-to-day operations of VectorVision, which is expected to significantly reduce costs, and
we intend to explore various alternative ways to preserve, manage and exploit our intellectual property rights, including our U.S. patents, associated with
the VectorVision technology. We are exploring both domestic and international business opportunities, such as licensing and distribution arrangements,
with experienced parties, which could assist us in the economic exploitation of these intellectual property rights. As a result of this change to the
VectorVision business strategy, management believes that it will be able to better focus its efforts and deploy capital resources to more growth-oriented
brands and product lines, like Viactiv, and other products in development, that it hopes to bring to market in 2022.
Competitive Advantage and Strategy
Dietary Supplements
We intend to formulate high quality scientifically credible dietary supplements with a goal to become a globally respected clinical nutrition company. We
believe our dietary supplements can play an important role in optimizing, preserving and restoring health.
Our products compete primarily in the consumer product category of dietary supplements. Successfully competing in this category requires a continuous
flow of new products and line extensions, and significant sales and marketing expenses. We will also invest in research and development that will help
guide our new product development process. We will compete in this category primarily on the basis of product innovation and performance, brand
recognition, price, value and other consumer benefits. Consumer products, particularly dietary supplements, are subject to significant price competition. As
a result, we, from time to time, may need to reduce the prices for some of our products to respond to competitive and customer pressures and to maintain
market share. Product introductions typically involve heavy marketing and trade spending in the year of launch, and we usually are not able to determine
whether the new products and line extensions will be successful until a period of time has elapsed following the introduction of the new products or the
extension of the product line.
Our products are marketed primarily through a broad distribution platform that includes supermarkets, mass merchandisers, wholesale clubs, drugstores,
and other discount and other specialty stores, and websites and other e-commerce channels, all of which sell our products to consumers. We also utilize the
services of independent brokers, who represent our products in the food, mass, club, and numerous other classes of trade. Our products are stored in third-
party owned warehouses and are delivered by independent trucking companies.
Medical Foods
Lumega-Z is a medical food designed to enhance the bioavailability of “difficult to absorb” ingredients like carotenoids. In contrast to other formulations,
Lumega-Z is a liquid formulated using a proprietary molecular micronization process (“MMP”) to maximize efficiency of absorption and to minimize
compatibility issues. The MMP is a proprietary homogenization process whereby the particle size of the ingredients is reduced to facilitate more efficient
absorption into the body. As noted earlier, clinical studies have shown Lumega-Z offers significantly higher absorption of carotenoids, than the leading
AREDS-based formula PreserVisionTM. In a subsequent study, Lumega-Z was also found to provide significantly better vision benefit than the AREDS-
based formula in patients with drusen and at risk of vision loss from AMD, as measured by contrast sensitivity. We believe we have an advantage with
Lumega-Z because of these two published studies showing superiority over the leading formula, PreserVisionTM, and because a growing body of evidence,
particularly the results from the AREDS studies, has demonstrated the importance of supplementation with carotenoids to offset vision loss in patients with
macular degeneration. Lumega-Z has demonstrated in studies to have higher absorption of carotenoids, which we believe may lead to better visual
outcomes and a superiority over the competitive formulas.
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GlaucoCetin is a medical food designed to support mitochondrial function in the optic nerve cells of glaucoma patients. For glaucoma, the primary risk
factor for disease progression has been thought to be elevated intraocular pressure which in turn damages the optic nerve cells leading to vision loss. As
such, the primary means for treating the disease, to slow or stop vision loss, is to lower the intraocular pressure through pharmaceutical or surgical means.
We believe that we have an advantage with GlaucoCetin because it is designed to offset the mitochondrial dysfunction of cells in glaucoma patients.
Growth Strategy
We believe that developing new products, growing our established distribution and cost effectively marketing our products are the keys to growing our
business. We have several innovation initiatives underway that are aimed at increasing the number of new products in our product portfolio and expanding
our total addressable market, and we plan to grow our established distribution network. Our current network includes many of the nation’s largest retailers,
including, among others, Walmart (retail and online), Target, CVS and Amazon. We are also focused on our direct-to-consumer website. We are working to
add additional retailers that sell our products and adding new sales channels. We are also focused on marketing initiatives that strengthen our brand and
target consumers who would benefit most from our specific products. We also intend to explore the acquisition of other companies, product lines and
intellectual property rights that may be complementary or supplementary as part of our efforts to expand our business.
Sales
Viactiv has traditionally sold the majority of its products through traditional retailers via third party brokers. We have continued to utilize these brokers to
sell the Viactiv products to retailers rather than employing an internal sales force. Online retailers have represented a smaller portion of sales, but we
believe these sales can be meaningful and play an important role in our eCommerce strategy. In addition, we sell a limited amount of Viactiv products
directly to consumers via our website, and plan to invest in this channel to grow sales. While the footprint for our direct-to-consumer channel is currently
small, we expect this channel to play an important role in our new product launches and growth. Furthermore, the Company is evaluating its medical food
product portfolio in order to determine whether it would be advantageous to fold those products into the Viactiv brand of supplements and utilize those
distribution channels.
Marketing – Digital
We are focused on marketing initiatives that strengthen our brand and target consumers who would benefit most from our products. We utilize digital
marketing for the majority of our marketing expenditures, and we believe that such methods have been among the most cost-effective way to market our
products.
Marketing – Practitioners
Healthcare practitioners are important stakeholders for our products, especially Lumega-Z and GlaucoCetin. We have deemphasized our direct sales
approach that involved our sales representatives in favor of a more cost-effective approach to increase the awareness of our products with health care
practitioners. This approach is designed to increase marketing reach through a combination of collaboration with industry-specific publishers, peer-to-peer
promotion using key opinion leader clinicians, organic and paid search engine optimization and marketing, and other content-driven and educational
approaches.
Domestic and International Expansion Strategy
We are primarily focused on expanding our business domestically rather than internationally. The acquisition of Activ in 2021 shifted our strategic focus
towards the Viactiv line of supplements, which has historically focused on domestic markets. As a result, the domestic markets allow us to leverage
Viactiv’s strong consumer brand awareness, distribution networks and key third party vendors relationships.
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Although we have decreased our focus on international expansion, we maintain relationships that we hope will lead to increased distribution of our existing
products and unique nutritional formulations in Asian markets. In March 2020, we received our first order for a novel immune support product from a
Malaysian company, which order was valued at $890,000 and we believe that we could have similar opportunities in the future.
Intellectual Property
Our goal is to obtain, maintain and enforce patent protection for our products, formulations, processes and methods, preserve our trade secrets, and operate
without infringing on the proprietary rights of other parties, both in the U.S. and in other countries. Our policy is to actively seek the broadest intellectual
property protection possible for our products and proprietary information through a combination of contractual arrangements and patents, both in the U.S.
and elsewhere in the world.
Patents
We currently own and have exclusive rights to four U.S. patents, one Canadian patent, and one Hong Kong patent application with respect to various
products and product candidates, as follows:
(1) U.S. Patent No. 9,486,136 entitled “Apparatus for Use in the Measurement of Macular Pigment Optical Density and/or Lens Optical Density of an
Eye,” issued on November 8, 2016.
(2) U.S. Patent No. 10,016,128 entitled “Method and Apparatus for Vision Acuity Testing,” issued on July 10, 2018.*
(3) U.S. Patent No. 10,022,045 entitled “Method and Apparatus for Vision Acuity Testing,” issued on July 17, 2018.*
(4) U.S. Patent No. 10,456,028 entitled “Apparatus for Use in the Measurement of Macular Pigment Optical Density and/or Lens Optical Density of an
Eye,” issued on October 29, 2019.
(5) Canadian Patent No. 2864154, titled “Apparatus for Use in the Measurement of Macular Pigment Optical Density and/or Lens Optical Density of an
Eye,” granted on May 18, 2021.
(6) Hong Kong Patent Appl. No. HK15105364.0A, titled “Apparatus for Use in the Measurement of Macular Pigment Optical Density and/or Lens Optical
Density of an Eye,” filed June 5, 2015 and published Dec. 4, 2015 as HK1204758A1.
* The patents marked with an asterisk are assigned to VectorVision Ocular Health, Inc.
Trademarks
We prominently display our trademarks on all Guardion and Viactiv products and believe that having distinctive trademarks is an important factor in the
promotion and marketing our product offerings. We have acquired or are in the process of acquiring registered protection for the trademarks most critical to
our business. We currently have ten trademarks registered with the United States Patent and Trademark Office (“USPTO”) and three applications pending
before the USPTO, all of which are used in association with the Guardion line of products. In addition, we have six trademarks registered with the USPTO
which are used in association with the Viactiv line of products.
Furthermore, we have 11 trademarks currently registered in foreign jurisdictions for use with our Guardion line of products, and we have 15 registrations
for the Viactiv trademark in a broad range of geographies. We are evaluating whether additional foreign trademark protection may be appropriate. The
domestic and foreign trademark registrations/applications referred to herein are set forth in the table below:
-10-
Trademark Registrations/Applications
Country
United States
Application/
Registration No.
5,132,075
App/Reg
Date
Owner
01/31/2017
Activ Nutritional, LLC
United States
2,531,197
1/22/2002
Activ Nutritional, LLC
Trademark
#BEACTIV
ACTIVE NUTRITION FOR
WOMEN BY WOMEN
CHEWS TO BE STRONG
United States
5,118,075
01/10/2017
Activ Nutritional, LLC
CHEWS TO MAKE A
DIFFERENCE
CSV-1000
CSV-2000
CSV-2000
United States
5,118,073
01/10/2017
Activ Nutritional, LLC
United States
4,500,241
03/25/2014
Guardion Health Sciences, Inc.
Republic of Korea
401593337
04/06/2020
Guardion Health Sciences, Inc.
United States
5,888,766
10/22/2019
Guardion Health Sciences, Inc.
EPIQ (& Design)
China
54241599
10/21/2021
Guardion Health Sciences, Inc.
EPIQ (& Design)
United States
90/566,436
03/08/2021
Guardion Health Sciences, Inc.
EPIQ in Chinese Characters
China
42592291
09/28/2020
Guardion Health Sciences, Inc.
EPIQ-V
EPIQ-V
China
48733586
04/14/2021
Guardion Health Sciences, Inc.
Malaysia
TM2021000520
01/07/2021
Guardion Health Sciences, Inc.
-11-
Trademark
Country
Application/
Registration No.
App/Reg
Date
Owner
EPIQ-V
EPIQ-V
EPIQ-V
Philippines
4202100500186
10/29/2021
Guardion Health Sciences, Inc.
United States
6,429,847
07/20/2021
Guardion Health Sciences, Inc.
United States
6,449,526
08/10/2021
Guardion Health Sciences, Inc.
GLAUCOCETIN
United States
5,933,586
12/10/2019
Guardion Health Sciences, Inc.
GLAUCO-HEALTH
United States
5,092,549
11/29/2016
Guardion Health Sciences, Inc.
GUARDION
LUMEGA-Z
LUMEGA-Z
MAPCAT SF
MAPCAT SF
United States
5,025,658
08/23/2016
Guardion Health Sciences, Inc.
China
27151643
11/07/2018
Guardion Health Sciences, Inc.
United States
5,757,377
05/21/2019
Guardion Health Sciences, Inc.
China
27151644
10/28/2018
Guardion Health Sciences, Inc.
United States
4,997,319
07/12/2016
Guardion Health Sciences, Inc.
OMEGA BOOST
United States
97/061,429
10/06/2021
Guardion Health Sciences, Inc.
OMEGA BOOST
(stylized)
United States
97/201,891
01/04/2022
Guardion Health Sciences, Inc.
VECTORVISION
VECTORVISION
VECTORVISION
China
China
China
27151642
02/07/2020
Guardion Health Sciences, Inc.
39703795
01/28/2021
Guardion Health Sciences, Inc.
48062177
07/14/2020
Guardion Health Sciences, Inc.
VECTORVISION
United States
4,341,403
05/28/2013
Guardion Health Sciences, Inc.
VIACTIV
Australia
IR13853061902404 10/15/2019
Activ Nutritional, LLC
-12-
Trademark
Country
Application/
Registration No.
App/Reg
Date
Owner
VIACTIV
VIACTIV
VIACTIV
VIACTIV
VIACTIV
VIACTIV
VIACTIV
VIACTIV
VIACTIV
VIACTIV
VIACTIV
VIACTIV
VIACTIV
VIACTIV
VIACTIV
Canada
TMA535149
10/19/2000
Activ Nutritional, LLC
China
Egypt
IR138530641246868 02/07/2021
Activ Nutritional, LLC
IR1385306
10/02/2017
Activ Nutritional, LLC
European Union
017257635
01/23/2021
Activ Nutritional, LLC
France
97707126
01/09/1998
Activ Nutritional, LLC
Germany
39753876
06/04/1998
Activ Nutritional, LLC
International
Bureau (WIPO)
Israel
Japan
IR1385306
10/02/1997
Activ Nutritional, LLC
IR1385306
02/05/2019
Activ Nutritional, LLC
IR1385306
09/06/2018
Activ Nutritional, LLC
Mexico
IR1385306
09/30/2019
Activ Nutritional, LLC
Morocco
IR1385306
12/26/2019
Activ Nutritional, LLC
Norway
IR1385306
01/18/2019
Activ Nutritional, LLC
Switzerland
IR1385306
12/10/2018
Activ Nutritional, LLC
Turkey
IR1385306
01/10/2019
Activ Nutritional, LLC
United States
2,248,302
05/25/1999
Activ Nutritional, LLC
VIACTIV LIFESTYLE
United States
5,073,522
11/01/2016
Activ Nutritional, LLC
Products Manufacturing and Sources and Availability of Raw Materials
We outsource the manufacturing of our medical food products and dietary supplement product line to contract manufacturers. We process orders through
purchase orders and invoices with each manufacturer. We believe that there are alternative sources, suppliers and manufacturers available for our products
in the event of a termination or a disagreement with any current vendor.
-13-
Government Regulation
Dietary Supplement Regulation
The US Food and Drug Administration (FDA) has primary jurisdiction for the regulation of dietary supplements. The FDA regulates dietary supplements,
such as Viactiv chews, as “dietary supplements” under the Federal Food, Drug, and Cosmetic Act (“FDCA”) as a distinct, sub-category of “food.” Dietary
supplements must meet the requirements of applicable food laws and regulations. A “dietary supplement” is defined under the FDCA as “a product (other
than tobacco) intended to supplement the diet that bears or contains one or more of the following dietary ingredients: vitamins, minerals, amino acids, herbs
or other botanicals; a concentrate, metabolite, constituent, extract or combination of the ingredients listed above.” Dietary supplements are intended to
enhance the diet and may not be represented as a conventional food or as the sole item of a meal or diet.
Dietary supplements do not require approval from the FDA before they are marketed. Except in the case of a “new dietary ingredient,” where pre-market
review for safety data and other information is required by law, a firm is not required to provide the FDA with the evidence it relies on to substantiate
safety or effectiveness before marketing a supplement product.
A manufacturer or distributor must notify the FDA if it intends to market a dietary supplement in the U.S. that contains a “new dietary ingredient.” A new
dietary ingredient is an ingredient first marketed as or in a dietary supplement after October 15, 1994. The manufacturer must demonstrate to the FDA that
the new ingredient is reasonably expected to be safe for use in a dietary supplement. There is no authoritative list of dietary ingredients that were marketed
before October 15, 1994. Therefore, manufacturers are responsible for determining if a dietary ingredient is “new.”
Owners or responsible parties of any facilities at which dietary supplements are manufactured, packaged, labeled, or held for distribution must register the
facility or facilities with FDA pursuant to the Bioterrorism Preparedness and Response Act of 2002 (“Bioterrorism Act”) before producing supplements.
Manufacturers of dietary supplements also must follow current good manufacturing practice (“cGMP”) regulations. Entities that manufacture, package,
label or hold dietary supplement products must follow applicable cGMP regulations. These regulations focus on practices that ensure the identity, purity,
quality, strength and composition of dietary supplements. We engage with contract manufacturers to manufacture our dietary supplements.
Companies are responsible for determining that the dietary supplements they manufacture or distribute are safe, and that any representations or claims
made about them are substantiated by adequate evidence to show that the claims are not false or misleading. The Federal Trade Commission (“FTC”) has
the primary responsibility to regulate the advertising of foods, including dietary supplements. Under the FTC Act, all advertising claims, both express and
implied, must be truthful, non-misleading, and substantiated. In practice, the FDA and FTC share jurisdiction over promotional practices and monitor the
promotion and advertising of dietary supplements in multiple media forms, including TV, radio, social media (e.g., Facebook, Twitter), and the internet.
Dietary supplements also are subject to the Nutrition, Labeling and Education Act, which regulates health claims, ingredient labeling, and nutrient content
claims characterizing the level of a nutrient in a product. Dietary supplements may be intended to affect the structure or function of the human body. If the
label of a dietary supplement contains such structure/function claims, the label must bear the disclaimer: “This statement has not been evaluated by the
Food and Drug Administration. This product is not intended to diagnose, treat, cure, or prevent any disease.” We are responsible for ensuring the accuracy
and truthfulness of all product claims.
Medical Foods Regulation
The FDA is primarily responsible for regulating medical foods. A medical food is defined under the FDCA as a “food which is formulated to be consumed
or administered enterally under the supervision of a physician and which is intended for the specific dietary management of a disease or condition for
which distinctive nutritional requirements, based on recognized scientific principles, are established by medical evaluation.”
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The FDA advises that it considers the statutory definition of medical foods to “narrowly” constrain the types of products that fit within the category of
food. FDA regulations further describe medical foods as a product that: (i) is a specially formulated and processed product (as opposed to a naturally
occurring foodstuff used in its natural state) for the partial or exclusive feeding of a patient by means of oral intake or enteral feeding by tube; (ii) is
intended for the dietary management of a patient who, because of therapeutic or chronic medical needs, has limited or impaired capacity to ingest, digest,
absorb, or metabolize ordinary foodstuffs or certain nutrients, or who has other special medically determined nutrient requirements, the dietary
management of which cannot be achieved by the modification of the normal diet alone; (iii) provides nutritional support specifically modified for the
management of the unique nutrient needs that result from the specific disease or condition, as determined by medical evaluation; (iv) is intended to be used
under medical supervision; and (v) is intended only for a patient receiving active and ongoing medical supervision wherein the patient requires medical
care on a recurring basis for, among other things, instructions on the use of the medical food.
Medical foods do not require approval or review by the FDA prior to marketing. However, a company must have data to demonstrate that the formula,
when taken as directed, meets the distinctive nutritional requirements of the particular disease or condition.
We currently consider our Lumega-Z and GlaucoCetin products to be medical foods. Like any evolving area, especially where no premarket approval is
required, the FDA reserves the right to raise questions about the qualification of products within any category. If the FDA were to disagree and consider our
medical foods to be “drugs” under the FDCA, we and our products would be subject to considerable additional FDA regulation.
The labeling for medical foods must comply with all applicable food labeling requirements, except for those specific requirements from which medical
foods are exempt. Medical foods are exempt, for example, from the labeling requirements for nutrient content claims and health claims under the Nutrition
Labeling and Education Act of 1990. As with all food labels, printing must be legible, and many required elements must be conspicuous, such as a
statement of identity, which is the name of the food; the statement: “Must be administered under the supervision of a physician or professional healthcare
provider;” the quantity; the ingredients listing; the name and address of the distributor, among other requirements.
All ingredients in foods must be either generally recognized as safe (“GRAS”) or approved food-additives. Many ingredients have been determined by the
FDA to be GRAS and are listed as such by regulation. Other ingredients may achieve self-affirmed GRAS status through a panel of experts on that
particular substance that author a GRAS report. The standard for an ingredient to achieve GRAS status requires not only technical demonstration of non-
toxicity and safety, but also general recognition and agreement on that safety by experts in the field. All ingredients used in our medical foods are either
FDA-approved food additives or have GRAS status.
Foods manufacturers must register with the FDA pursuant to the Bioterrorism Act before producing foods. Manufacturers of foods also must follow cGMP
regulations applicable to foods. Entities that manufacture, package, label or hold food products must follow applicable cGMP regulations. These
regulations focus on practices that ensure sanitary and cleanly conditions of manufacturing facilities. We engage contract manufacturers to manufacture
Lumega-Z and GlaucoCetin.
The FTC has the primary responsibility to regulate the advertising of foods. Under the FTC Act, all advertising claims, both express and implied, must be
truthful, non-misleading, and substantiated.
Enforcement by the regulators is post-market, mostly via FDA inspections of food manufacturing facilities, including packaging, distribution facilities, and
fulfillment houses. The FDA and FTC also gathers material at trade shows and conferences and review company websites and social media accounts.
-15-
Healthcare Laws and Regulations
Stark Law
The Omnibus Budget Reconciliation Act of 1993 prohibits certain physician self-referrals. This law and its supporting regulations, which have been
amended and expanded substantially, are commonly referred to as the “Stark Law,” and prohibit a physician from making any referral of a Designated
Health Service (“DHS”) to an entity that furnishes or bills for DHS (a “DHS Entity”) and with which the physician has a financial relationship, and
prohibits DHS Entities from billing for any DHS that is referred, unless all of the requirements of a regulatory exception are met. Stark covered DHS
include both outpatient prescription drugs and diagnostic testing that are reimbursable by Medicare or Medicaid. Many states have similar laws (“State
Self-Referral Prohibitions”), some of which can apply to all payors and not just governmental payors.
At present, neither Lumega Z nor GlaucoCetin are outpatient prescription drugs nor are they reimbursable under any federal program. Further, we do not
furnish any DHS to patients, nor bill any DHS to any federal program. We believe that the federal Stark Law is thus inapplicable. Further, we believe that
State Self-Referral Prohibitions are unlikely to apply for similar reasons. To the extent that the products might become reimbursable under a federal
program, or otherwise become covered under the Stark Law, we believe that the physicians who recommend our medical foods, Lumega-Z and
GlaucoCetin, to their patients are aware of Stark Law and State Self-Referral Prohibition requirements. However, we do not monitor their compliance and
have no assurance that the physicians are in material compliance with the Stark Law or State Self-Referral Prohibitions. If it were determined that the
physicians who prescribe medical foods purchased from us were not in compliance with the Stark Law or State Self-Referral Prohibitions, it could
potentially have an adverse effect on our business, financial condition and results of operations.
Anti-Kickback Statute
The federal anti-kickback statute (the “AKS”) applies to Medicare, Medicaid and other state and federal programs. AKS prohibits the solicitation, offer,
payment or receipt of remuneration in return for referrals of the purchase, or in return for recommending or arranging for the referral or purchase, of goods,
including drugs, covered by the federal health care programs. At present, we do not participate in any federal programs and our products are not reimbursed
by Medicare, Medicaid or any other state or federal program. The AKS is a criminal statute with criminal penalties, as well as potential civil and
administrative penalties. The AKS, however, provides a number of statutory exceptions and regulatory “safe harbors” for particular types of transactions.
Many states have similar fraud and abuse laws and their own anti-kickback laws, some of which can apply to all payors, and not just governmental payors.
While we believe that we are in material compliance with both federal and state AKS laws, the AKS laws present different levels of risks as to our sale of
our medical foods, Lumega-Z and GlaucoCetin.
At present, our products are not reimbursable under any federal program. If, however, that changes in the future and we determine that we are not in
compliance with the AKS, we could be subject to liability, and our operations could be curtailed. Moreover, if the activities of our customers or other entity
with which we have a business relationship were found to constitute a violation of the AKS and we, as a result of the provision of products or services to
such customer or entity, were found to have knowingly participated in such activities, we could be subject to sanctions or liability under such laws,
including civil and/or criminal penalties, as well as exclusion from government health programs. As a result of exclusion from government health
programs, neither products nor services could be provided to any beneficiaries of any federal healthcare program.
The Federal False Claims Act
The Federal False Claims Act provides for the imposition of extensive financial penalties (including treble damages and fines of over $22,000 for every
false claim) if a provider submits false claims to any governmental health program either knowingly or in reckless disregard or in deliberate ignorance of
the truth or falsity of the claims at issue. Liability under the False Claims Act can arise from patterns of deficient documentation, coding and billing, as well
as for billing for services that are deemed not to have been medically necessary for the treatment of the patient. Many states have their own False Claims
Acts as well.
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To the extent we were billing governmental health care programs, the False Claims Act may potentially be applicable to such operations. We put a fraud
and abuse compliance program in place that was designed to ensure that our documentation, coding and billing were accurate and compliant. Any patterns
of uncorrected deficiencies in documenting, coding and billing, however, may result in fines and other liabilities, which may adversely affect our results of
operations.
State Regulatory Requirements
Each state has its own regulations concerning physician dispensing, restrictions on the Corporate Practice of Medicine (“CPOM”), anti-kickback and false
claim regulations. In addition, each state has a board of pharmacy that regulates the sale and distribution of drugs and other therapeutic agents. Some states
require that a physician obtain a license to dispense prescription products. When considering the commencement of business in a new state, we consult with
healthcare counsel regarding the expansion of operations and utilize local counsel when necessary.
Other United States Regulatory Requirements
In the United States, the research, manufacturing, distribution, sale, and promotion of food and medical devices products are subject to regulation by
various federal, state, and local authorities in addition to the FDA, including the Centers for Medicare and Medicaid Services, other divisions of the United
States Department of Health and Human Services (e.g., the Office of Inspector General), the United States Department of Justice and individual United
States Attorney offices within the Department of Justice, and state and local governments. Pricing and rebate programs must comply with the Medicaid
rebate requirements of the Omnibus Budget Reconciliation Act of 1990 and the Veterans Health Care Act of 1992, each as amended. If products are made
available to authorized users of the Federal Supply Schedule of the General Services Administration, additional laws and requirements apply. All of these
activities are also potentially subject to federal and state consumer protection, unfair competition, and other laws. In addition, we may be subject to federal
and state laws requiring the disclosure of financial arrangements with health care professionals.
Foreign Regulatory Requirements
We may eventually be subject to widely varying foreign regulations, which may be quite different from those of the FDA, governing clinical trials, product
design, manufacturing, labeling, product registration and approval, and sales. Whether or not FDA approval has been obtained, generally we must obtain
separate authorization for a product by the comparable regulatory authorities of foreign countries prior to the commencement of product marketing in those
countries. In certain countries, regulatory authorities also establish pricing and reimbursement criteria. The authorization or approval process varies from
country to country.
Employees
As of March 25, 2022, we, including our subsidiaries, had a total of 13 full-time employees. and no part-time employees. We are not a party to any
collective bargaining agreements. We believe that we maintain good relations with our employees.
Science Advisory Board
Our research and development efforts are shaped by our Science Advisory Board, a product development and research team composed of industry experts
in clinical nutrition. This team is committed to revealing and validating the connections between health and nutrition and then developing products based
on these findings. Their joint goal is the integration of a medical model incorporating nutritional therapy into clinical practice.
In addition to developing products based on scientific studies in the public domain, members of our Science Advisory Board conduct and publish their own
evidence. Their expertise and the evidence they develop guide the formulation of all of our products.
-17-
Corporate History
Guardion Health Sciences, Inc. was formed under the name P4L Health Sciences, LLC in December 2009 in California as a limited liability company. We
changed our name to Guardion Health Sciences, LLC in December 2009. In June 2015, we converted into a Delaware “C” corporation.
On October 29, 2020, our stockholders approved an extension of the previously granted discretionary authority of the board of directors to amend our
certificate of incorporation to effectuate a reverse stock split, at a specific ratio within a range of no split to a maximum of a one-for-thirty (1-for-30) split,
with the exact ratio to be determined by our board of directors in its sole discretion. The former authorization, which expired on December 5, 2020, was
extended through October 29, 2021.
On March 1, 2021, we filed a Certificate of Amendment to our Certificate of Incorporation, as amended, with the Secretary of State of the State of
Delaware to effectuate a one-for-six (1:6) reverse stock split (the “Reverse Stock Split”) of our common stock without any change to our par value.
Proportional adjustments for the Reverse Stock Split were made to our outstanding common stock, stock options, and warrants as if the split occurred at the
beginning of the earliest period presented in this Annual Report on Form 10-K.
ITEM 1A. RISK FACTORS
Investing in the Company’s common stock involves a high degree of risk. Prospective investors should carefully consider the risks described below, together
with all of the other information included or referred to in this Form 10-K, before purchasing shares of the Company’s common stock. There are numerous
and varied risks that may prevent the Company from achieving its goals. If any of these risks actually occurs, the business, financial condition or results of
operations may be materially adversely affected. In such case, the trading price of the Company’s common stock could decline and investors in the
Company’s common stock could lose all or part of their investment.
Risks Related to the Company’s Business
As the Company has incurred recurring losses and negative cash flows since its inception, there is no assurance that the Company will be able to reach
and sustain profitability. If it cannot reach and sustain profitability, the Company will be required to secure additional financing, which the Company
may not be able to obtain on favorable terms or at all.
The Company has incurred net losses since inception in 2009 and cannot be certain if or when the Company will produce sufficient revenue from
operations to support costs. The Company had a net loss of $24,745,009 for the year ended December 31, 2021 and a net loss of $8,571,657 for the year
ended December 31, 2020. The Company had an accumulated deficit of $78,802,072 as of December 31, 2021. At December 31, 2021, the Company had
cash and short term investments on hand of $9,089,550 and working capital of $10,910,139. In addition, the Company completed an offering in February
2022 that generated additional net cash proceeds of approximately $10 million. Notwithstanding the net loss for 2021, management believes that its current
cash balance is sufficient to fund operations for at least one year from the date the Company’s 2021 financial statements are issued.
The Company will continue to incur significant expenses related to the commercialization of its products and with respect to its efforts to build its
infrastructure, expand its operations, and execute on its business plans.
Even if profitability is achieved in the future, the Company may not be able to sustain profitability on a consistent basis. The Company expects to continue
to incur substantial losses and negative cash flow from operations for the foreseeable future. The Company’s financial statements for the year ended
December 31, 2021 have been prepared assuming that the Company will continue as a going concern.
The Company does not have any credit facilities as a source of present or future funds, and there can be no assurance that the Company will be able to raise
sufficient additional capital on acceptable terms, or at all. The Company may seek additional capital through a combination of private and public equity
offerings and debt financings. If the Company raises additional funds through the issuance of equity or convertible debt securities, the percentage
ownership of the Company’s stockholders could be significantly diluted, and these newly issued securities may have rights, preferences or privileges senior
to those of existing stockholders. Debt financing, if obtained, may involve agreements that include covenants limiting or restricting the ability to take
specific actions, such as incurring additional debt, would increase expenses and may require that Company assets secure such debt.
-18-
The Company’s ability to obtain additional financing in the future will be subject to a number of factors, including but not limited to, market conditions,
operating performance and investor sentiment. If the Company is unable to raise additional capital when required or on acceptable terms, the Company may
have to significantly delay, scale back or discontinue its operations or obtain funds by entering into agreements on unattractive terms, which would likely
have a material adverse effect on its business, stock price and relationships with third parties, at least until additional funding is obtained. If the Company
does not have sufficient funds to continue operations, the Company could be required to seek other alternatives that would likely result in the Company’s
stockholders losing some or all of their investment.
The future success of the Company’s business is largely dependent upon the successful commercialization of its products. If the Company is unable to
establish and maintain adequate sales, marketing and distribution capabilities or enter into or maintain agreements with third parties to do so, it may be
unable to successfully commercialize its products. Establishing and maintaining sales, marketing, and distribution capabilities is expensive and time-
consuming. Such expenses may be disproportionate compared to the revenues the Company may be able to generate from sales. If this occurs, it will have
an adverse impact on the Company’s operations and its ability to fund future development and commercialization efforts.
The COVID-19 global pandemic has and may continue to adversely impact the Company’s business, including the commercialization of the Company’s
products, supply chain, clinical trials, liquidity and access to capital markets and business development activities.
In March 2020, the World Health Organization characterized COVID-19 as a pandemic. The President of the United States declared the COVID-19
pandemic a national emergency and many states and municipalities in the Unites States announced aggressive actions to reduce the spread of the disease,
including limiting non-essential gatherings of people, ceasing all non-essential travel, ordering certain businesses and government agencies to cease non-
essential operations at physical locations and issuing “shelter-in-place” orders which direct individuals to shelter at their places of residence (subject to
limited exceptions). The effects of government actions and the Company’s policies and those of third parties to reduce the spread of COVID-19 may
negatively impact productivity and the Company’s ability to market and sell its products, cause disruptions to its supply chain and impair its ability to
execute its business development strategy. These and other disruptions in the Company’s operations and the global economy could negatively impact the
Company’s business, operating results and financial condition.
The commercialization of the Company’s products may be adversely impacted by COVID-19 and actions taken to slow its spread. For example, patients
may postpone visits to retailers, and healthcare provider facilities, certain healthcare providers may temporarily close their offices or restrict patient visits,
healthcare provider employees may become generally unavailable and there could be disruptions in the operations of payors, distributors, logistics
providers and other third parties that are necessary for the Company’s products to be recommended and administered to patients.
Quarantines, shelter-in-place and similar government orders, or the perception that such orders, shutdowns or other restrictions on the conduct of business
operations could occur, related to COVID-19 or other infectious diseases could impact personnel at third-party manufacturing facilities upon which the
Company relies, or the availability or cost of materials, which could disrupt the supply chain for the Company’s products.
Moreover, the Company has been experiencing supply chain constraints due to the COVID-19 pandemic. These constraints began in December 2021 and
have continued into 2022. These constraints have impacted the Company’s ability to obtain inventory to fulfill customer orders for its Viactiv branded
products and may continue to impact the Company’s ability to fulfill customer orders going forward which would have a material adverse effect on the
Company’s business and results of operations. The Company continues to experience challenges to meet customer demands, largely because of broad-
based shortages in suppliers’ labor which impact the availability of many critical components in the Company’s supply chain and distribution. We are
subject to out-of-stock fees to certain retailers in the event that we are unable to adequately maintain certain inventory levels of our Viactiv products.
Additionally, the Company and its suppliers are experiencing significant broad-based inflation of manufacturing and distribution costs as well as
transportation challenges. The Company expects shortages to continue at least through the first half of 2022 and input cost inflation to continue at least
throughout 2022.
-19-
The spread of COVID-19 and actions taken to reduce its spread may also materially affect the Company economically. As a result of the COVID-19
pandemic and actions taken to slow its spread, the global credit and financial markets have experienced extreme volatility and disruptions, including
diminished liquidity and credit availability, declines in consumer confidence, declines in economic growth, increases in unemployment rates and
uncertainty about economic stability. If the equity and credit markets continue to deteriorate, it may make any additional debt or equity financing more
difficult, more costly or more dilutive. While the potential economic impact brought by, and the duration of, COVID-19 may be difficult to assess or
predict, there could be a significant disruption of global financial markets, reducing the Company’s ability to access capital, which could in the future
negatively affect the Company’s liquidity and financial position or the Company’s business development activities.
The extent to which the COVID-19 pandemic may impact the commercialization of the Company’s products, supply chain, access to capital and business
development activities, will depend on future developments, which are highly uncertain and cannot be predicted with confidence, such as the ultimate
geographic spread of the pandemic, the duration of the pandemic and the efforts by governments and business to contain it, business closures or business
disruptions and the impact on the economy and capital markets.
The Company has limited experience in developing dietary supplements and medical foods and it may be unable to commercialize some of the products
it develops or acquires.
Development and commercialization of dietary supplements and medical foods involves a lengthy and complex process. The Company has limited
experience in developing products and has only a few commercialized products on the market. Furthermore, there is no guarantee that any newly developed
products will be marketable or that the Company will achieve commercial success with any new products or product lines.
Even if the Company develops or acquires products for commercial use, these products may not be accepted by the consumer, or medical marketplaces or
be capable of being offered at prices that will enable the Company to become profitable. The Company cannot assure you that its products will be approved
by regulatory authorities, if required, or ultimately prove to be useful for commercial markets, meet applicable regulatory standards, or be successfully
marketed.
The Company’s investment in new businesses and new products, services, and technologies is inherently risky, and could disrupt its current operations.
The Company has invested and expects to continue to invest in new businesses, products, services, and technologies. Such endeavors involve significant
risks and uncertainties, including insufficient revenues from such investments to offset any new liabilities assumed and expenses associated with these new
investments, inadequate return of capital on the Company’s investments, distraction of management from current operations, and unidentified issues not
discovered in its due diligence of such strategies and offerings that could cause the Company to fail to realize the anticipated benefits of such investments
and incur unanticipated liabilities. Because these new ventures are inherently risky, no assurance can be given that such strategies and offerings will be
successful and will not adversely affect the Company’s reputation, financial condition, and operating results.
A key part of the Company’s business strategy is to establish collaborative relationships to commercialize and develop its products. The Company may
not succeed in establishing and maintaining collaborative relationships, which may significantly limit its ability to develop and commercialize its
products successfully, if at all.
A key part of the Company’s business strategy is to establish collaborative relationships to commercialize and fund development of its products.
While the Company believes that these collaborative relationships help further validate its products, these relationships are not material to the Company
because these relationships are not exclusive, there are many potential collaborative partners available, and the Company and each collaborator is free to
enter into other collaborative relationships as needed.
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The Company may not be able to negotiate collaborations on acceptable terms, if at all, and if it does enter into collaborations, these collaborations may not
be successful. The Company’s current and future success depends in part on its ability to enter into successful collaboration arrangements. If the Company
is unable to establish and maintain collaborative relationships on acceptable terms or to successfully transition terminated collaborative agreements, the
Company may have to delay or discontinue further development of one or more of its product candidates, undertake development and commercialization
activities at its own expense or find alternative sources of capital. Consequently, if it is unable to enter into, maintain or extend successful collaborations,
the Company’s business may be harmed.
The Company’s long-term success may depend upon the successful development and commercialization of products other than its current products.
The Company’s long-term viability and growth may depend upon the successful development and commercialization of products other than its current line
of products. Product development and commercialization is very expensive and involves a high degree of risk. Only a small number of research and
development programs result in the commercialization of a product. Product development is a complex and time-consuming process. If the Company fails
to adequately manage the research, development, execution and regulatory aspects of new product development it may fail to launch new products
altogether.
Patent litigation is common in the pharmaceutical and biopharmaceutical industries. Any litigation or claim against the Company may cause it to incur
substantial costs and could place a significant strain on its financial resources, divert the attention of management from its business and harm the
Company’s reputation.
While the Company is not a pharmaceutical or a biopharmaceutical company, as a health sciences company, the Company’s products may come into
competition with products in the medical foods and related industries, such as pharmaceuticals, biologics or dietary supplements. There has been
substantial litigation in the pharmaceutical and biopharmaceutical industries with respect to the manufacture, use and sale of new products that are the
subject of conflicting patent rights. For the most part, these lawsuits relate to the validity, enforceability and infringement of patents. The Company
currently relies upon and expects to continue to rely upon patents, trade secrets, know-how, continuing technological innovations and licensing
opportunities to develop and maintain its competitive position. The Company may find it necessary to initiate claims to defend its intellectual property
rights as a result. Other parties may have issued patents or be issued patents that may prevent the sale of the Company’s products or know-how or require
the Company to license such patents and pay significant fees or royalties to produce its products. In addition, future patents may be issued to third parties
which the Company’s technology may infringe on. Because patent applications can take many years to be issued, there may be applications now pending of
which the Company is unaware that may later result in issued patents that the Company’s products may infringe on.
Intellectual property litigation, regardless of outcome, is expensive and time-consuming, and could divert management’s attention from the Company’s
business and have a material negative effect on the Company’s business, operating results or financial condition. If such a dispute were to be resolved
against the Company, it may be required to pay substantial damages, including treble damages and attorney’s fees to the party claiming infringement if the
Company were to be found to have willfully infringed a third party’s patent. The Company may also have to develop non-infringing technology, stop
selling any products it develops, cease using technology that contains the allegedly infringing intellectual property or enter into royalty or license
agreements that may not be available on acceptable or commercially practical terms, if at all. The Company’s failure to develop non-infringing
technologies or license the proprietary rights on a timely basis could harm its business. Modification of any products the Company develops or
development of new products thereafter could require the Company to become subject to other requirements of the FDA and other regulatory bodies, which
could be time-consuming and expensive. In addition, parties making infringement claims may be able to obtain an injunction that would prevent the
Company from selling any products it develops, which could harm its business.
Competitors may develop products similar to the Company’s products, and the Company may therefore need to modify or alter its business strategy,
which may have a material adverse effect on the Company.
Competitors may develop products with similar characteristics to the Company’s products. Such similar products marketed by larger competitors could
hinder the Company’s efforts to penetrate the market.
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Many large competitors have substantially greater financial, research and development, manufacturing and marketing experience and resources as well as
greater brand recognition than the Company does and represent substantial long-term competition for the Company. Such companies may develop products
that are safer, more effective or less costly than any that the Company may develop. Such companies also may be more successful than the Company is in
manufacturing, sales and marketing.
As a result, the Company may be forced to modify or alter its business and regulatory strategy and sales and marketing plans, as a response to changes in
the market, competition and technology limitations, among others. Such modifications may pose additional delays in achieving the Company’s goals which
may have a material adverse effect on the Company.
If the Company is unable to develop its own sales, marketing and distribution capabilities, or if it is not successful in contracting with third parties for
these services on favorable terms, or at all, revenues from product sales could be limited.
To commercialize the Company’s products successfully, the Company must develop more robust capabilities internally or collaborate with third parties that
can perform these services. In the process of commercializing the Company’s products, the Company may not be able to hire the necessary experienced
personnel and build sales, marketing and distribution operations capable of successfully launching new products and generating sufficient product
revenues. In addition, establishing such operations takes time and involves significant expense.
If the Company decides to enter into co-promotion or other licensing arrangements with third parties, it may be unable to identify acceptable partners
because the number of potential partners is limited and because of competition from others for similar alliances with potential partners. Even if the
Company is able to identify one or more acceptable partners, it may not be able to enter into any partnering arrangements on favorable terms, or at all. If
the Company enters into any partnering arrangements, its revenues are likely to be lower than if the Company marketed and sold its products itself.
In addition, any revenues the Company receives would depend upon its partners’ efforts which may not be adequate due to lack of attention or resource
commitments, management turnover, and change of strategic focus, further business combinations or other factors outside of its control. Depending upon
the terms of the Company’s agreements, the remedies the Company against an under-performing partner may be limited. If the Company were to terminate
the relationship, it may be difficult or impossible to find a replacement partner on acceptable terms, or at all.
Product liability lawsuits against the Company could divert its resources and could cause it to incur substantial liabilities and limit commercialization
of its products.
The Company faces a risk of product liability exposure related to the use of its products. If the Company cannot successfully defend itself against claims
that its products caused injuries, the Company will incur substantial liabilities. Regardless of merit or eventual outcome, liability claims may result in:
● decreased demand for any current products or products that the Company may develop;
● injury to the Company’s reputation and significant negative media attention;
● significant costs to defend the related litigation;
● loss of revenue; and
● reduced time and attention of the Company’s management to pursue the Company’s business strategy.
The Company’s insurance policies may not fully cover liabilities that it may incur in the event of a product liability lawsuit. The Company may not be able
to maintain insurance coverage at a reasonable cost or in an amount adequate to satisfy any liability that may arise.
The Company may be unsuccessful in expanding its product distributions.
The Company is dependent on third-party sales broker and distribution relationships. These brokers and distributors may not commit the necessary
resources to market and sell the Company’s products to the level of the Company’s expectations. If sales brokers and distributors do not perform
adequately, or if the Company is unable to locate distributors in particular geographic areas, the Company’s ability to realize long-term revenue growth
would be materially adversely affected.
-22-
Additionally, the Company’s products may require regulatory clearances and approvals from jurisdictions outside the United States. The Company expects
that it will be subject to and required to comply with local regulatory requirements before selling its products in those jurisdictions. The Company is not
certain that it will be able to obtain these clearances or approvals or compliance requirements on a timely basis, or at all.
The Company has historically sold its products to customers outside the U.S. and may sell products outside of the United States in 2022 and beyond. As a
result, the Company’s business is exposed to risks inherent in international operations. These risks, which can vary substantially by location, include the
following:
● governmental laws, regulations and policies adopted to manage national economic and macroeconomic conditions, such as increases in taxes, austerity
measures that may impact consumer spending, monetary policies that may impact inflation rates, currency fluctuations and sustainability of resources;
● changes in environmental, health and safety regulations, such as the continued implementation of the European Union’s Registration, Evaluation,
Authorisation and Restriction of Chemicals regulations and similar regulations that are being evaluated and adopted in other markets, and the burdens
and costs of our compliance with such regulations;
● increased environmental, health and safety regulations or the loss of necessary environmental permits in certain countries, arising from growing
consumer sensitivity concerning the inclusion of flavor additives in food products and the fact that regulators perceive dietary supplements, medical
foods and functional food products as having medicinal attributes;
● the imposition of or changes in tariffs, quotas, trade barriers, other trade protection measures and import or export licensing requirements, by the U.S.
or other countries, which could adversely affect the Company’s cost or ability to import raw materials or export its flavors and fragrance products to
surrounding markets;
● risks and costs arising from language and cultural differences;
● changes in the laws and policies that govern foreign investment in the countries in which the Company operates, including the risk of expropriation or
nationalization, and the costs and ability to repatriate the profit that the Company generates in these countries;
● risks and costs associated with political and economic instability, bribery and corruption, anti-American sentiment, and social and ethnic unrest in the
countries in which the Company operates;
● difficulty in recruiting and retaining trained local personnel;
● natural disasters, pandemics or international conflicts, including terrorist acts, or national and regional labor strikes in the countries in which the
Company operates, which could interrupt our operations or endanger its personnel; or
● the risks of operating in developing or emerging markets in which there are significant uncertainties regarding the interpretation, application and
enforceability of laws and regulations and the enforceability of contract rights and intellectual property rights.
-23-
Manufacturing risks and inefficiencies may adversely affect the Company’s ability to produce products.
The Company engages third parties to manufacture its products in sufficient quantities and on a timely basis, while maintaining product quality, acceptable
manufacturing costs and complying with regulatory requirements. In determining the required quantities of its products and the manufacturing schedule,
the Company must make significant judgments and estimates based on historical experience, inventory levels, current market trends and other related
factors. Because of the inherent nature of estimates, there could be significant differences between the Company’s estimates and the actual amounts of
products it requires. If the Company is unable to obtain from one or more of its vendors the needed materials or components that meet our specifications on
commercially reasonable terms, or at all, the Company may not be able to meet the demand for its products. While the Company has not arranged for
alternate suppliers, and it may be difficult to find alternate suppliers in a timely manner and on terms acceptable to the Company, the Company believes
that there are alternative sources, suppliers and manufacturers available for its products in the event of a termination or a disagreement with any current
vendor. Additionally, the Company’s supply chain may be jeopardized for a period of time due to the COVID-19 outbreak or challenges related to supply
chain constraints.
The Company has been experiencing supply chain constraints due to the COVID-19 pandemic. These constraints began in approximately December 2021
and have continued into 2022. These constraints have impacted our ability the Company’s ability to obtain inventory to fulfill customer orders for its
Viactiv branded products and may continue to impact its ability to fulfill customer orders going forward which would have a material adverse effect on the
Company’s business and results of operations. The Company continues to experience challenges to meet customer demands, largely because of broad-
based shortages in suppliers’ labor which impact the availability of many critical components in the Company’s supply chain and distribution. The
Company is subject to out-of-stock fees to certain retailers in the event that the Company is unable to adequately maintain certain inventory levels of our
Viactiv products. Additionally, the Company and its suppliers are experiencing significant broad-based inflation of manufacturing and distribution costs as
well as transportation challenges. The Company expects shortages to continue at least through the first half of 2022 and input cost inflation to continue at
least throughout 2022.
Security breaches and other disruptions could compromise the Company’s information and expose it to liability, which would cause its business and
reputation to suffer.
In the ordinary course of the Company’s business, the Company collects and stores sensitive data, including intellectual property, its proprietary business
information and that of its customers and business partners, including potentially personally identifiable information of its customers, some of which is
stored on the Company’s network and some of which is stored with the Company’s third-party e-commerce vendor. Despite the Company’s security
measures, its information technology and infrastructure may be vulnerable to attacks by hackers or breached due to operator error, malfeasance or other
disruptions. Any such breach could compromise the Company’s network and the information stored there could be accessed, publicly disclosed, lost or
stolen. Any such access, disclosure or other loss of information could result in legal claims or proceedings, liability under laws that protect the privacy of
personal information, disrupt the Company’s operations, and damage the Company’s reputation, which could adversely affect the Company’s business.
The Company’s billings and revenues are derived from a limited number of customers and the loss of any one or more of them may have an immediate
adverse effect on its financial results.
During the years ended December 31, 2021 and 2020, the Company’s billings were derived from a limited number of individual customers and distributors.
During the year ended December 31, 2021, the Company’s clinical nutrition business had one customer who accounted for approximately 49% of the
Company’s sales; and during the year ended December 31, 2020, the Company’s clinical nutrition business had one customer who accounted for
approximately 47% of the Company’s sales. No other customer accounted for more than 10% of sales in either year. Customers may stop purchasing the
Company’s products with little or no warning. Loss of customers may have an immediate adverse effect on the Company’s financial results.
If customers do not accept the Company’s products or delay in deciding whether to recommend the Company’s products, its business, financial
condition and results of operations may be adversely affected.
The Company’s business model depends on its ability to sell its products. Third party brokers play an important role in the sales of the Viactiv line of
supplements since the majority of these sales are made through traditional retailers. The Company utilizes these brokers to sell to it retail customers rather
than employing an internal sales force. The Company cannot assure you that these brokers will be successful in selling its products to traditional retail
customers. In addition, acceptance of the Company’s products greatly benefits from physicians who understand and appreciate the benefits of Lumega-Z
and GlaucoCetin and recommend them to their patients. The Company cannot assure you that physicians will integrate its products into their treatment
plans or patient recommendations. Achieving market acceptance for the Company’s products and services will require substantial sales and marketing
efforts and the expenditure of significant financial and other resources to create awareness and demand by participants in the healthcare industry. If the
Company fails to achieve broad acceptance of its products by physicians, and other healthcare industry participants or if the Company fails to position its
products as an ocular health remedy, the Company’s business, financial condition and results of operations may be adversely affected.
-24-
The Company is highly dependent upon consumers’ perception of the safety and quality of its products as well as similar products distributed by other
companies in its industry, and adverse publicity and negative public perception regarding particular ingredients or products or the Company’s industry
in general could limit the Company’s ability to increase revenue and grow our business.
Decisions about purchasing made by consumers of the Company’s products may be affected by adverse publicity or negative public perception regarding
particular ingredients or products or the Company’s industry in general. This negative public perception may include publicity regarding the legality or
quality of particular ingredients or products in general or of other companies or our products or ingredients specifically. Negative public perception may
also arise from regulatory investigations, regardless of whether those investigations involve the Company. The Company is highly dependent upon
consumers’ perception of the safety and quality of its products as well as similar products distributed by other companies. Thus, the mere publication of
reports asserting that such products may be harmful could have a material adverse effect on the Company, regardless of whether these reports are
scientifically supported. Publicity related to nutritional supplements may also result in increased regulatory scrutiny of the Company’s industry and/or the
healthy foods channel. Adverse publicity may have a material adverse effect on the Company’s business, financial condition, results of operations and cash
flows.
If the Company is deemed to infringe on the proprietary rights of third parties, it could incur unanticipated expense and be prevented from providing its
products.
The Company could be subject to intellectual property infringement claims as the number of its competitors grows and if its products or the functionality of
its products overlap with patents of the Company’s competitors. While the Company does not believe that it has infringed or is infringing on any
proprietary rights of third parties, the Company cannot assure you that infringement claims will not be asserted against it or that those claims will be
unsuccessful. The Company could incur substantial costs and diversion of management resources defending any infringement claims whether or not such
claims are ultimately successful. Furthermore, a party making a claim against the Company could secure a judgment awarding substantial damages, as well
as injunctive or other equitable relief that could effectively block the Company’s ability to provide products. In addition, the Company cannot assure you
that licenses for any intellectual property of third parties that might be required for its products will be available on commercially reasonable terms, or at
all.
The Company’s business depends on its intellectual property rights, and if it is unable to protect them, its competitive position may suffer.
Protecting the Company’s intellectual property rights is critical to its continued success and its ability to maintain its competitive position. The Company’s
goal is to protect its proprietary rights through a combination of patent, trademark, trade secret and copyright law, confidentiality agreements and technical
measures. The Company generally enters into non-disclosure agreements with its employees and consultants and limits access to its trade secrets and
technology. The Company cannot assure you that the steps it has taken will prevent misappropriation of its intellectual property. Misappropriation of the
Company’s intellectual property would have an adverse effect on its competitive position.
The Company’s success, competitive position, and future revenues will depend, in part, on its ability to obtain and maintain patent protection for its
products, methods and processes; to preserve its trade secrets; to obtain trademarks for its name, logo and products; to prevent third parties from infringing
its proprietary rights; and to operate without infringing the proprietary rights of third parties. To counter infringement or unauthorized use by third parties,
the Company may be required to file infringement claims, which can be expensive and time-consuming.
The patent process is subject to numerous risks and uncertainties, and there can be no assurance that the Company will be successful in protecting its
products by obtaining and defending patents. These risks and uncertainties include the following:
-25-
● claims of issued patents, and the claims of any patents which may be issued in the future and be owned by or licensed to the Company may be
challenged by third parties, resulting in patents being deemed invalid, unenforceable, or narrowed in scope, a third party may circumvent any such
issued patents, or such issued patents may not provide any significant commercial protection against competing products;
● the Company’s competitors, many of which have substantially greater resources than the Company does and many of which have made significant
investments in competing technologies, may seek, or may already have obtained, patents that will limit, interfere with, or eliminate the Company’s
ability to make, use, and sell the Company’s current and future products either in the United States or in international markets; and
● the legal systems of some foreign countries do not encourage the aggressive enforcement of patents, and countries other than the United States
may have less restrictive patent laws than those upheld by United States courts, allowing foreign competitors the ability to exploit these laws to
create, develop, and market competing products. Thus, the Company’s foreign patents may not be enforceable to the same extent as the
counterpart U.S. patents.
In addition, the USPTO, and patent offices in other jurisdictions have often required that patent applications concerning pharmaceutical and/or
biotechnology-related inventions be limited or narrowed substantially to cover only the specific innovations exemplified in the patent application, thereby
limiting the scope of protection against competitive challenges. Thus, even if the Company or any of its licensors are able to obtain patents, the patents may
be substantially narrower than anticipated.
The Company must attract and retain quality management and employees in order to manage its growth. Failure to do so may result in slower
expansion.
In order to support the growth of the Company’s business and the additional obligations that come with being an exchange-listed company, the Company
will need to expand its senior management team and attract and retain quality employees. There is no assurance that the Company will be capable of
attracting and retaining quality executives and integrating those individuals into the Company’s management system. Without experienced and talented
management and employees, the growth of the Company’s business may be adversely impacted.
The Company’s ability to attract and retain qualified members for its board of directors may be impacted due to new potential rules of national
securities exchanges.
Nasdaq has adopted new listing rules to become effective on the later of August 8, 2022 and the date a company files its proxy statement for its 2022
annual meeting of stockholders related to board diversity and disclosure, which requires all companies listed on Nasdaq’s U.S. exchanges to publicly
disclose consistent, transparent diversity statistics regarding their board of directors. Additionally, the rules require most Nasdaq-listed companies to have,
or explain why they do not have, at least two diverse directors, including one who self-identifies as female and one who self-identifies as either an
underrepresented minority or LGBTQ+.
Failure to achieve designated minimum gender and diversity levels in a timely manner exposes such companies to financial penalties and reputational
harm. We cannot assure that we can recruit, attract and/or retain qualified members of the board and meet Nasdaq rules, which may expose us to penalties
and/or reputational harm.
The Company’s acquisition strategy involves a number of risks.
The Company is regularly engaged in acquisition discussions with other companies and anticipate that one or more potential acquisition opportunities,
including those that would be material or could involve businesses with operating characteristics that differ from the Company’s existing business
operations, may become available in the future. If and when appropriate acquisition opportunities become available, the Company intends to pursue them
actively. Acquisitions involve a number of risks, including, but not limited to:
-26-
● failure of the acquired business to achieve expected results, as well as the potential impairment of the acquired assets if operating results decline
after acquisition;
● diversion of management’s attention;
● additional financing, if necessary and available, which could increase leverage and costs, dilute equity, or both;
● the potential negative effect on the Company’s financial statements from the increase in goodwill and other intangibles;
● difficulties in integrating the operations, systems, technologies, products and personnel of acquired companies;
● initial dependence on unfamiliar supply chains or relatively small supply partners;
● the potential loss of key employees, customers, distributors, vendors and other business partners of the companies the Company acquires after the
acquisition;
● the high cost and expenses of identifying, negotiating and completing acquisitions; and
● risks associated with unanticipated events or liabilities.
These risks could have a material adverse effect on the Company’s business, results of operations and financial condition. The Company has faced, and
expects to continue to face, intense competition for acquisition candidates, which may limit its ability to make acquisitions and may lead to higher
acquisition prices. The Company cannot assure you that it will be able to identify, acquire or manage profitably.
Unfavorable global economic conditions could adversely affect the Company’s business, financial condition or results of operations.
The Company’s results of operations could be adversely affected by general conditions in the global economy and in the global financial markets, including
changes in inflation and overall economic conditions and uncertainties. Inflation could also adversely affect the ability of the Company’s customers to
purchase its products. An economic downturn, including as a result of COVID-19, could result in a variety of risks to the Company’s business, including
weakened demand for the Company’s products and the Company’s inability to raise additional capital when needed on acceptable terms, if at all. Any of
the foregoing could harm the Company’s business and the Company cannot anticipate all of the ways in which the current economic climate and financial
market conditions could adversely impact its business.
Risks Related to the Company’s Acquisition of Activ Nutritional, LLC
Integrating Activ’s business with the Company’s business may be more difficult, costly, or time-consuming than expected, and the Company may not
realize the expected benefits of its acquisition of Activ, which may adversely affect the Company’s business, financial condition, and results of
operations.
If the Company experiences greater than anticipated costs to integrate, or is not able to successfully integrate, Activ’s business into its operations, the
Company may not be able to achieve the anticipated benefits of its acquisition of Activ, including cost savings and other synergies and growth
opportunities. Even if the integration of Activ’s business is successful, the Company may not realize all of the anticipated benefits of its acquisition of
Activ during the anticipated time frame, or at all. For example, events outside of the Company’s control, such as changes in regulations and laws, as well as
economic trends, including as a result of the COVID-19 pandemic, could adversely affect the Company’s ability to realize the expected benefits from its
acquisition of Activ. An inability to realize the full extent of the anticipated benefits of the Company’s acquisition of Activ could have an adverse effect
upon its revenue, level of expenses, and results of operations.
Activ may have liabilities that are not known to the Company.
Activ may have liabilities that the Company failed, or was unable, to discover in the course of performing its due diligence investigations in connection
with its acquisition of Activ. The Company may learn additional information about Activ that materially and adversely affects the Company and Activ,
such as unknown or contingent liabilities and liabilities related to compliance with applicable laws. Moreover, Activ may be subject to audits, reviews,
inquiries, investigations, and claims of non-compliance and litigation by federal and state regulatory agencies which could result in liabilities or other
sanctions. Any such liabilities or sanctions, individually or in the aggregate, could have an adverse effect on the Company’s business, financial condition,
and results of operations.
The Company has made certain assumptions relating to the Activ acquisition that may prove to be materially inaccurate.
The Company has made certain assumptions relating to the Activ acquisition that may prove to be inaccurate, including as the result of the failure to realize
the expected benefits of the Activ acquisition, failure to realize expected revenue growth rates, higher than expected operating and transaction costs, as well
as general economic and business conditions that adversely affect the Company.
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Risks Related to Government Regulations
The Company and its suppliers and manufacturers are subject to a number of existing laws, regulations and industry initiatives and the regulatory
environment of the healthcare industry is continuing to change. If it is determined that the Company or its suppliers or manufacturers are not in
compliance with the laws and regulations to which they are respectively subject, the Company’s business, financial condition and results of operations
may be adversely affected.
As a participant in the healthcare industry, the Company’s operations and relationships, and those of the Company’s customers, are regulated by a number
of federal, state, local, and foreign governmental entities with oversight of various aspects of product manufacture, distribution, sale, and use. The
regulations are very complex, have become more stringent over time, and are subject to changing and varying interpretations. Regulatory restrictions or
changes could limit the Company’s ability to carry on or expand its operations or result in higher than anticipated costs or lower than anticipated sales. The
FDA and other federal and state governmental agencies regulate numerous elements of the Company’s business, including:
● product formulation and development;
● pre-clinical and clinical testing;
● product labels and labeling;
● establishment registration and product listing;
● product safety, including product recalls or other field-safety actions;
● manufacturing, testing, packaging, storage, distribution;
● premarket approval or authorization;
● record keeping procedures;
● marketing, sales, advertising and promotion;
● post-market surveillance, including reporting of adverse events; and
● product import and export.
The Company may be subject to similar foreign laws that govern all of the above elements of the Company’s business, including pre-market and post
marketing obligations for our products. The time required to obtain authorization to sell the Company’s products in foreign countries may be longer or
shorter than that required by the FDA, and requirements for licensing a product in a foreign country may differ significantly from FDA requirements. In the
European Union (“EU”), member states are responsible for enforcing the EU’s rules and for ensuring that only compliant products are placed on the market
in their jurisdictions. Member states have powers to suspend the marketing and use, or demand the recall, of unsafe or non-compliant medical products.
They also have the power to bring enforcement action against companies or individuals for breaches of the rules governing certain medical products.
The FDA, FTC, states, and other regulatory authorities have broad enforcement powers. Failure to comply with applicable regulatory requirements could
result in enforcement action by the FDA, FTC, state, or regulatory authorities, which may include the following:
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● untitled letters or warning letters;
● fines, disgorgement, restitution, or civil penalties;
● injunctions (e.g., total or partial suspension of production) or consent decrees;
● product recalls, administrative detention, or seizure;
● customer notifications or product replacement, or refunds;
● operating restrictions or partial suspension or total shutdown of production;
● delays in or refusal to grant requests for future product approvals, new intended uses, or modifications to existing products; and
● criminal prosecution.
Any of these sanctions could result in higher than anticipated costs or lower than anticipated sales and have a material adverse effect on the Company’s
reputation, business, financial condition, and results of operations.
Dietary supplements, such as Viactiv, and medical foods do not require premarket approval by FDA before they may be distributed in the United States
(with limited exceptions). The company currently considers Lumega-Z and GlaucoCetin to be medical foods, as that term is defined under the FDCA.
While the Company believes Lumega-Z and GluacoCetin are medical foods, if the FDA determines Lumega-Z or GlaucoCetin to be a “drug” under the
FDCA, the Company and the products would be subject to considerable additional FDA regulation. FDA defines a “drug” as an article that is intended for
use in the cure, treatment, prevention or mitigation of a disease. A medical food is defined as “a food which is formulated to be consumed or administered
enterally under the supervision of a physician and which is intended for the specific dietary management of a disease or condition for which distinctive
nutritional requirements, based on recognized scientific principles, are established by medical evaluation.”
Our relationships with healthcare providers may subject us to anti-kickback, fraud and abuse and other healthcare laws and regulations, which could
change or expose us to potential penalties, reputational harm and diminished profits and future earnings, among other penalties and consequences.
The Company cannot anticipate how changes in regulations or determinations by regulatory agencies may evolve. Thus, application of many foreign, state
and federal regulations to the Company’s business operations is uncertain. Further, there are federal and state fraud and abuse laws, including anti-kickback
laws and limitations on physician referrals that may or may not be directly or indirectly applicable to the Company’s operations and relationships or the
business practices of its customers. It is possible that a review of the Company’s business practices or those of its customers by courts or regulatory
authorities could result in a determination that may adversely affect the Company. In addition, the healthcare regulatory environment may change in a way
that restricts existing operations or growth. The healthcare industry is expected to continue to undergo significant changes for the foreseeable future, which
could have an adverse effect on the Company’s business, financial condition and results of operations. The Company cannot predict the effect of possible
future legislation and regulation.
If the Company or its third-party manufacturers fail to comply with FDA cGMP regulations or fail to adequately, timely, or sufficiently respond to an
FDA Form 483 or subsequent Warning Letter, this could impair the Company’s ability to market its products in a cost-effective and timely manner and
could result in FDA enforcement action.
The FDA requires facilities that manufacture FDA-regulated products to comply with cGMP regulations, which cover the methods and documentation of
the design, testing, production, control, quality assurance, labeling, packaging, storage and shipping of the Company’s products. The Company does not
manufacture any of its products internally and instead relies on contract manufacturers to manufacture its products. The Company and its third-party
manufacturers are required to comply with cGMP regulations. The FDA audits compliance with cGMP and related regulations through periodic announced
and unannounced inspections of manufacturing and other facilities. The FDA may conduct these inspections at any time.
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The Company’s products and facility, and the facilities of its manufacturers, are subject to federal laws and regulations and certain state laws. Failure
to comply with any applicable law or regulation could result in penalties and restrictions on the Company’s manufacturers’ ability to manufacture and
the Company’s ability to distribute products. If any such action were to be imposed, it could have a material adverse effect on the Company’s business
and results of operations.
Although the Company’s supplement and food products do not require pre-market approval by the FDA, manufacturers of the Company’s products must be
registered with the FDA. Manufacturers of FDA-regulated products are subject to periodic inspection by the FDA and state health authorities. The
manufacture of the Company’s FDA-regulated products is outsourced in its entirety to three third-party manufacturers. The Company is evaluating
additional manufacturers for selection as second source or back-up providers.
The Company’s products have not been reviewed by the FDA. There is no certainty that the FDA will favorably review the Company’s products or its
manufacturers’ facilities. If the outcome of an inspection is negative or if the Company or the Company’s manufacturers fail to comply with any law or
regulation, the Company could be subject to penalties and restrictions on the Company’s manufacturers’ ability to manufacture and distribute products.
Any such action may result in a material adverse effect on the Company’s business and results of operations. For a more complete discussion of the laws
and regulations to which the Company is subject, see “Business - Government Regulation.”
The Company may be subject to fines, penalties, injunctions or other administrative actions if it is deemed to be promoting its products outside of their
intended use (i.e., as drugs), or if it is using false or misleading claims in its promotional materials.
The Company’s business and future growth depend on the development, use and ultimate sale of products that are subject to FDA regulation. Under the
FDCA and other laws, the Company is prohibited from promoting its nutritional products for treatment of a condition or disease. The Company’s
promotional materials and marketing activities must comply with FDCA, FTCA, and other applicable laws and regulations, including laws and regulations
prohibiting marketing claims that promote the use of the Company’s products outside of their intended use as supplements or foods (i.e., as a drug) or that
make false or misleading statements. The FDA also could conclude that a performance claim is misleading if it determines that there are inadequate non-
clinical and/or clinical data supporting the claim.
There is a risk that the FDA or other federal or state law enforcement authorities could determine that the nature and scope of the Company’s sales and
marketing activities may constitute the promotion of the Company’s products for use as a drug in violation of applicable law, or that its promotional
materials include false or misleading statements. The Company also faces the risk that the FDA or other regulatory authorities might pursue enforcement
based on past activities that the Company discontinued or changed, including sales activities, arrangements with institutions and doctors, educational and
training programs and other activities.
Government investigations are typically expensive, disruptive, burdensome and generate negative publicity. If its promotional activities are found to be in
violation of applicable law or if the Company agrees to a settlement in connection with an enforcement action, the Company would likely face significant
fines and penalties and would likely be required to substantially change its sales, promotion and educational activities. In addition, were any enforcement
actions against the Company or its senior officers to arise, the Company could be excluded from participation in U.S. government healthcare programs such
as Medicare and Medicaid.
The Company’s products may cause undesirable side effects or have other properties that could delay or prevent any required regulatory approval, limit
the commercial potential or result in significant negative consequences following any potential marketing approval, or result in a product recall that
could harm the Company’s reputation, business and financial results.
If the Company’s products are associated with undesirable side effects or adverse events, or have characteristics that are unexpected, the Company may
need to abandon its development or limit development to certain uses or subpopulations in which the undesirable side effects or other characteristics are
less prevalent, less severe or more acceptable from a risk-benefit perspective. The Company also may have to remove a commercialized product from the
market as consequence of serious adverse events associated with the product. Any serious adverse or undesirable side effects identified during the
development of the Company’s products, could interrupt, delay or halt commercialization and/or could result in the additional regulatory requirements by
the FDA or other regulatory authorities, and in turn prevent the Company from commercializing its product candidates and generating revenues from their
sale.
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Companies may, under their own initiative, recall a product or the government may mandate a recall. A government-mandated or voluntary recall by the
Company or one of its distributors could occur as a result of adverse side effects, impurities or other product contamination, manufacturing errors, labeling
defects or other deficiencies and issues. Recalls of any of the Company’s products would divert managerial and financial resources and have an adverse
effect on the Company’s financial condition and results of operations. In addition, the FDA requires companies to maintain certain records of recalls, even
if they are not reportable to the FDA. The Company may initiate voluntary recalls involving the Company’s products in the future that it determines do not
require notification of the FDA. If the FDA disagrees with the Company’s determinations, it could require the Company to report those actions as recalls. A
future recall announcement could harm the Company’s reputation with customers and negatively affect the Company’s sales. In addition, the FDA could
take enforcement action for failing to report the recalls when they were conducted.
In order to expand the Company’s business into additional jurisdictions, it may need to comply with regulatory requirements specific to such states and
there can be no assurance that it will be able to initially meet such requirements or that it will be able to maintain compliance on an on-going basis.
While the Company believes Lumega-Z® and GlaucoCetinTM to be medical foods and not drugs, they are only available under the supervision of a
physician. While not available in pharmacies, the Company is mindful that the act of physicians prescribing, particularly if conducted across state lines,
could potentially be subject to certain pharmacy regulations. Each state has its own regulations concerning physician dispensing, restrictions on the
corporate practice of medicine, anti-kickback and false claims. In addition, each state has a board of pharmacy that regulates the sale and distribution of
drugs and other therapeutic agents. Some states require a physician to obtain a license to dispense prescription products. While the Company does not
believe these pharmacy requirements are applicable, should a pharmacy board or medical board determine otherwise, there can be no assurance that the
Company will be able to comply with the regulations of particular states into which the Company currently does business or may expand, or that we will be
able to maintain compliance with the states in which we currently distribute our products.
The Company is subject to anti-corruption laws, as well as export control laws, customs laws, sanctions laws and other laws governing its operations. If
it fails to comply with these laws, it could be subject to civil or criminal penalties, other remedial measures and legal expenses, be precluded from
developing manufacturing and selling certain products outside the U.S. or be required to develop and implement costly compliance programs, which
could adversely affect its business, results of operations and financial condition.
The Company’s operations are subject to anti-corruption laws, including the U.K. Bribery Act 2010, or Bribery Act, the U.S. Foreign Corrupt Practices Act
(“FCPA”) and other anti-corruption laws that apply in countries where the Company does business (including in Malaysia) and may do business in the
future, particularly as the Company expands its sales and operations to foreign markets. The Bribery Act, FCPA and these other laws generally prohibit the
Company, its officers, and its employees and intermediaries from bribing, being bribed or making other prohibited payments to government officials or
other persons to obtain or retain business or gain some other business advantage. Compliance with the FCPA, in particular, is expensive and difficult,
particularly in countries in which corruption is a recognized problem. In addition, the FCPA presents particular challenges in the pharmaceutical industry,
because, in many countries, hospitals are operated by the government, and doctors and other hospital employees are considered foreign officials. Certain
payments to hospitals in connection with clinical trials and other work have been deemed to be improper payments to government officials and have led to
FCPA enforcement actions.
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The Company may in the future operate in jurisdictions that pose a high risk of potential Bribery Act or FCPA violations, and the Company may participate
in collaborations and relationships with third parties whose actions could potentially subject the Company to liability under the Bribery Act, FCPA or local
anti-corruption laws. In addition, the Company cannot predict the nature, scope or effect of future regulatory requirements to which its international
operations might be subject or the manner in which existing laws might be administered or interpreted. If the Company expands its operations outside of
the U.S., the Company will need to dedicate additional resources to comply with numerous laws and regulations in each jurisdiction in which it plans to
operate.
In addition, various laws, regulations and executive orders also restrict the use and dissemination outside of the U.S., or the sharing with certain non-U.S.
nationals, of information classified for national security purposes, as well as certain products and technical data relating to those products. If the Company
expands its presence outside of the U.S., the Company will be required to dedicate additional resources to comply with these laws, and these laws may
preclude the Company from developing, manufacturing, or selling certain products outside of the U.S., which could limit the Company’s growth potential
and increase its development costs.
The Company may not be completely effective in ensuring compliance with all applicable anti-corruption laws, including the Bribery Act, the FCPA or
other legal requirements, including Trade Control laws. If the Company is not in compliance with the Bribery Act, the FCPA and other anti-corruption laws
or Trade Control laws, the Company may be subject to criminal and civil penalties, disgorgement and other sanctions and remedial measures, and legal
expenses, which could have an adverse impact on the Company’s business, financial condition, results of operations and liquidity. The Securities and
Exchange Commission also may suspend or bar issuers from trading securities on U.S. exchanges for violations of the FCPA’s accounting provisions. Any
investigation of any potential violations of the Bribery Act, the FCPA, other anti-corruption laws or Trade Control laws by U.K., U.S. or other authorities
could also have an adverse impact on the Company’s’ reputation, business, results of operations and financial condition.
Risks Related to the Company’s Common Stock
The Company received a written notice from Nasdaq that it has failed to comply with certain listing requirements of the Nasdaq Stock Market, which
could result in the Company’s being delisted from the Nasdaq Stock Market.
On January 25, 2022, the Company received a notification from Nasdaq related to its failure to maintain a minimum bid price of $1 per share. Based upon
the closing bid price for the last 30 consecutive business days, the Company no longer meets this requirement. However, the Nasdaq Listing Rules also
provide the Company a compliance period of 180 calendar days in which to regain compliance. Accordingly, if at any time from the date of this notice until
July 25, 2022, the closing bid price the Company’s common stock is at least $1 for a minimum of ten consecutive business days, Nasdaq will provide the
Company with written confirmation of compliance and the matter will be closed. If the Company does not regain compliance with the minimum bid price
requirement by July 25, 2022, the Company may be afforded a second 180 calendar day period to regain compliance. To qualify, the Company would be
required to meet all other initial listing standards, except for the minimum bid price requirement. In addition, the Company would be required to notify
Nasdaq of its intent to cure the deficiency during the second compliance period. If the Company does not regain compliance with the minimum bid price
requirement by the end of the compliance period (or the second compliance period, if applicable), the Company’s common stock will become subject to
delisting. If the Company is delisted from Nasdaq, its common stock may be eligible for trading on an over-the-counter market. If the Company is not able
to obtain a listing on another stock exchange or quotation service for the Company’s common stock, it may be extremely difficult or impossible for
stockholders to sell their shares. The Company intends to monitor the closing bid price of the Company’s common stock and may be required to seek
approval from its stockholders to effect a reverse stock split of the issued and outstanding shares of the Company’s common stock. However, there can be
no assurance that the reverse stock split would be approved by the Company’s stockholders. Further, there can be no assurance that the market price per
new share of the Company’s common stock after the reverse stock split will remain unchanged or increase in proportion to the reduction in the number of
old shares of the Company’s common stock outstanding before the reverse stock split. Even if the reverse stock split is approved by the Company’s
stockholders, there can be no assurance that the Company will be able to regain compliance with the minimum bid price requirement or will otherwise be in
compliance with other Nasdaq listing rules.
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If the Company is delisted from Nasdaq, its common stock may be eligible for trading on an over-the-counter market. If the Company is not able to obtain
a listing on another stock exchange or quotation service for its common stock, it may be extremely difficult or impossible for stockholders to sell their
shares of common stock. Moreover, if the Company is delisted from Nasdaq, but obtains a substitute listing for its common stock, it will likely be on a
market with less liquidity, and therefore experience potentially more price volatility than experienced on Nasdaq. Stockholders may not be able to sell their
shares of common stock on any such substitute market in the quantities, at the times, or at the prices that could potentially be available on a more liquid
trading market. As a result of these factors, if the Company’s common stock is delisted from Nasdaq, the value and liquidity of the Company’s common
stock, warrants and pre-funded warrants would likely be significantly adversely affected. A delisting of the Company’s common stock from Nasdaq could
also adversely affect the Company’s ability to obtain financing for its operations and/or result in a loss of confidence by investors, employees and/or
business partners.
If the Company implements a reverse stock split, liquidity of its common stock may be adversely effected.
The Company may be required to seek approval from its stockholders to effect a reverse stock split of the issued and outstanding shares of its common
stock in order to regain compliance with the Nasdaq minimum bid price requirement. However, there can be no assurance that the reverse stock split would
be approved by the Company’s stockholders. Further, there can be no assurance that the market price per new share of the Company’s common stock after
the reverse stock split will remain unchanged or increase in proportion to the reduction in the number of old shares of the Company’s common stock
outstanding before the reverse stock split. The liquidity of the shares of the Company’s common stock may be affected adversely by any reverse stock split
given the reduced number of shares of the Company’s common stock that will be outstanding following the reverse stock split, especially if the market
price of the Company’s common stock does not increase as a result of the reverse stock split.
Following any reverse stock split, the resulting market price of the Company’s common stock may not attract new investors and may not satisfy the
investing requirements of those investors. Although the Company believes that a higher market price of the Company’s common stock may help generate
greater or broader investor interest, there can be no assurance that the reverse stock split will result in a share price that will attract new investors, including
institutional investors. In addition, there can be no assurance that the market price of the Company’s common stock will satisfy the investing requirements
of those investors. As a result, the trading liquidity of the Company’s common stock may not necessarily improve.
The Company is an “emerging growth company” and it has elected to comply with certain reduced reporting and disclosure requirements which could
make its common stock less attractive to investors.
The Company is an “emerging growth company,” as defined in the Jumpstart Our Business Startups Act of 2012 (the “JOBS Act”). For as long as the
Company continues to be an emerging growth company, it has elected to take advantage of exemptions from various reporting requirements that are
applicable to other public companies that are not emerging growth companies, including (1) not being required to comply with the auditor attestation
requirements of Section 404 of the Sarbanes-Oxley Act of 2002, as amended, (the “Sarbanes-Oxley Act”), (2) reduced disclosure obligations regarding
executive compensation in the Company’s periodic reports and proxy statements and (3) exemptions from the requirements of holding a nonbinding
advisory vote on executive compensation and stockholder approval of any golden parachute payments not previously approved. In addition, as an emerging
growth company, the Company is only required to provide two years of audited financial statements. As a result of these reduced reporting and disclosure
requirements the Company’s financial statements may not be comparable to SEC registrants not classified as emerging growth companies. The Company
may be an emerging growth company for up to five years following the first sale the Company’s equity securities in a public offering (April 2019),
although circumstances could cause the Company to lose that status earlier, including if the market value of the Company’s common stock held by non-
affiliates exceeds $700.0 million before that time or if the Company has total annual gross revenue of $1.07 billion or more during any fiscal year before
that time, in which cases the Company would no longer be an emerging growth company as of the following December 31 or, if the Company issues more
than $1.0 billion in non-convertible debt during any three-year period before that time, the Company would immediately cease to be an emerging growth
company. Even after the Company no longer qualifies as an emerging growth company, the Company may still qualify as a “smaller reporting company”
which would allow it to take advantage of many of the same exemptions from disclosure requirements, including not being required to comply with the
auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act and reduced disclosure obligations regarding executive compensation in its
periodic reports and proxy statements. The Company cannot predict if investors will find the Company’s common stock less attractive because the
Company may rely on these exemptions. If some investors find the Company’s common stock less attractive as a result, there may be a less active trading
market for the Company’s common stock and the Company’s stock price may be more volatile.
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Under the JOBS Act, emerging growth companies can also delay adopting new or revised accounting standards until such time as those standards apply to
private companies. The Company has elected to avail itself of this exemption from new or revised accounting standards and, therefore, will not be subject
to the same new or revised accounting standards as other SEC registrants that are not emerging growth companies.
Investors may find the Company’s common stock less attractive as a result of its election to utilize these exemptions, which could result in a less active
trading market for the Company’s common stock and/or the market price of the Company’s common stock may be more volatile.
The Company’s stock price has fluctuated in the past, has been volatile and may be volatile, and as a result, investors in the Company’s common stock
could incur substantial losses.
The Company’s stock price has fluctuated in the past, has been and may be volatile. The Company may incur rapid and substantial increases or decreases in
its stock price in the foreseeable future that are unrelated to its operating performance or prospects. In addition, the recent outbreak of the novel strain of
coronavirus (COVID-19) has caused broad stock market and industry fluctuations. The stock market in general and the market for biotechnology and
pharmaceutical companies in particular have experienced extreme volatility that has often been unrelated to the operating performance of particular
companies. As a result of this volatility, investors may experience losses on their investment in the Company’s common stock. The market price for the
Company’s common stock may be influenced by many factors, including the following:
● investor reaction to the Company’s business strategy;
● the success of competitive products;
● the Company’s continued compliance with the listing standards of Nasdaq;
● regulatory or legal developments in the United States and other countries, especially changes in laws or regulations applicable to the Company’s
products;
● actions taken by regulatory agencies with respect to the Company’s products, manufacturing process or sales and marketing terms;
● variations in the Company’s financial results or those of companies that are perceived to be similar to the Company;
● the success of the Company’s efforts to acquire or in-license additional products;
● developments concerning the Company’s collaborations or partners;
● declines in the market prices of stocks generally;
● trading volume of the Company’s common stock;
● sales of the Company’s common stock by the Company or its stockholders;
● general economic, industry and market conditions; and
● other events or factors, including those resulting from such events, or the prospect of such events, including war, terrorism and other international
conflicts, public health issues including health epidemics or pandemics, such as the outbreak of the novel coronavirus (COVID-19), and natural
disasters such as fire, hurricanes, earthquakes, tornados or other adverse weather and climate conditions, whether occurring in the United States or
elsewhere, could disrupt the Company’s operations, disrupt the operations of the Company’s suppliers or result in political or economic instability.
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These broad market and industry factors may seriously harm the market price of the Company’s common stock, regardless of its operating performance.
Further, recent increases are inconsistent with any improvements in actual or expected operating performance, financial condition or other indicators of
value. Since the stock price of the Company’s common stock has fluctuated in the past, has and may be volatile, investors in the Company’s common stock
could incur substantial losses. In the past, following periods of volatility in the market, securities class-action litigation has often been instituted against
companies. Such litigation, if instituted against the Company could result in substantial costs and diversion of management’s attention and resources, which
could materially and adversely affect the Company’s business, financial condition, results of operations and growth prospects. There can be no guarantee
that the Company’s stock price will remain at current prices or that future sales of the Company’s common stock will not be at prices lower than those sold
to investors.
Additionally, securities of certain companies have experienced significant and extreme volatility in stock price due short sellers of shares of common stock,
known as a “short squeeze.” These short squeezes have caused extreme volatility in those companies and in the market and have led to the price per share
of those companies to trade at a significantly inflated rate that is disconnected from the underlying value of the company. Many investors who have
purchased shares in those companies at an inflated rate face the risk of losing a significant portion of their original investment as the price per share has
declined steadily as interest in those stocks have abated. While the Company has no reason to believe its shares would be the target of a short squeeze, there
can be no assurance that the Company will not, in the future be subject to a short squeeze and you may lose a significant portion or all of your investment if
you purchase the Company’s shares at a rate that is significantly disconnected from its underlying value.
The Company does not intend to pay cash dividends to its stockholders, so you may not receive any return on your investment in the Company prior to
selling your interest in the Company.
The Company has never paid any dividends to its common stockholders. The Company currently intends to retain any future earnings for funding growth
and, therefore, does not expect to pay any cash dividends in the foreseeable future. If the Company determines that it will pay cash dividends to the holders
of its common stock, it cannot assure that such cash dividends will be paid on a timely basis. The success of your investment in the Company will likely
depend entirely upon any future appreciation. As a result, you will not receive any return on your investment prior to selling your shares in the Company
and, for the other reasons discussed in this “Risk Factors” section, you may not receive any return on your investment even when you sell your shares in the
Company.
The Company may require additional capital in the future to support its operations, and this capital has not always been readily available.
The Company may require additional debt or equity financing to fund its operations, including, but not limited to, working capital. The Company’s limited
operating history since its recent acquisition of Activ, which fundamentally changed its business, makes it difficult to evaluate the Company’s current
business model and future prospects. Accordingly, investors should consider the Company’s prospects in light of the costs, uncertainties, delays and
difficulties frequently encountered by companies in the early stages of development, as the Company has, in fact, encountered. Potential investors should
carefully consider the risks and uncertainties that a new company with a limited operating history and with limited funds, will face. In particular, while the
Company does not have current plans to re-prioritize its business plan, potential investors should consider that there is a significant risk that the Company
will not be able to:
● implement or execute its current business plan, which may or may not be sound;
● maintain its anticipated management and advisory team;
● raise sufficient funds in the capital markets to effectuate the Company’s business plan; and
● identify, acquire or successfully integrate any acquisition candidate.
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If the Company raises additional funds through further issuances of equity or convertible debt securities, the Company’s existing stockholders could suffer
significant dilution, and any new equity securities the Company issues could have rights, preferences and privileges superior to those of holders of the
Company’s existing capital stock. Any debt financing secured by the Company in the future could involve restrictive covenants relating to the Company’s
capital raising activities and other financial and operational matters, which may make it more difficult for the Company to obtain additional capital and to
pursue business opportunities. In addition, the Company may not be able to obtain additional financing on terms favorable to it, if at all. If the Company is
unable to obtain adequate financing or financing on terms satisfactory to it, when required, its ability to continue to support its current operations and to
respond to business challenges would be significantly limited. If the Company cannot access the capital necessary to support the Company’s business, the
Company would be forced to curtail its business activities or even shut down operations. If the Company cannot execute any one of the foregoing or similar
matters relating to the Company’s business, the business may fail, in which case you would lose the entire amount of your investment in the Company.
If the Company fails to comply with the rules under the Sarbanes-Oxley Act related to internal controls and procedures in the future, or, if the
Company discovers material weaknesses and other deficiencies in its internal controls over financial reporting, the Company’s stock price could decline
significantly and raising capital could be more difficult.
Section 404 of the Sarbanes-Oxley Act requires annual management assessments of the effectiveness of the Company’s internal controls over financial
reporting. If the Company fails to comply with the rules under the Sarbanes-Oxley Act related to disclosure controls and procedures in the future, or, if the
Company discovers material weaknesses and other deficiencies in its internal controls over financial reporting, the Company’s stock price could decline
significantly and raising capital could be more difficult. If material weaknesses or significant deficiencies are discovered or if the Company otherwise fails
to achieve and maintain the adequacy of its internal controls, the Company may not be able to ensure that it can conclude on an ongoing basis that it has
effective internal controls over financial reporting in accordance with Section 404 of the Sarbanes-Oxley Act. Moreover, effective internal controls are
necessary for the Company to produce reliable financial reports and are important to helping prevent financial fraud. If the Company cannot provide
reliable financial reports or prevent fraud, its business and operating results could be harmed, investors could lose confidence in the Company’s reported
financial information, and the trading price of the Company’s common stock could drop significantly.
The Company’s Second Amended and Restated Bylaws designates the Court of Chancery of the State of Delaware as the sole and exclusive forum for
certain types of state law actions and proceedings that may be initiated by the Company’s stockholders, which could limit a stockholder’s ability to
obtain a favorable judicial forum for disputes with it or its directors, officers, employees or agents.
The Company’s Second Amended and Restated Bylaws (“Bylaws”) designates the Delaware Court of Chancery as the sole and exclusive forum for certain
state law based actions including certain derivative actions or proceedings brought on behalf of the Company; an action asserting a breach of fiduciary duty
owed by an officer, a director, employee or to the stockholders of the Company; any claim arising under Delaware corporate law; and any action asserting a
claim governed by the internal affairs doctrine.
This exclusive forum provision does not apply to suits brought to enforce any liability or duty created by the Securities Act or the Exchange Act or other
federal securities laws for which there is exclusive federal or concurrent federal and state jurisdiction.
This choice of forum provision may limit a stockholder’s ability to bring a claim in a judicial forum that it finds favorable for disputes with the Company or
its directors, officers, employees or agents and may result in increased costs to the Company’s stockholders, which may discourage such lawsuits against
the Company and its directors, officers, employees and agents even though an action, if successful, might benefit the Company’s stockholders. The Court
of Chancery may also reach different judgments or results than would other courts, including courts where a stockholder considering an action may be
located or would otherwise choose to bring the action, and such judgments or results may be more favorable to the Company than to its stockholders.
Alternatively, if a court were to find this provision of the Company’s Bylaws inapplicable to, or unenforceable in respect of, one or more of the specified
types of actions or proceedings, the Company may incur additional costs associated with resolving such matters in other jurisdictions, which could have a
material adverse effect on its business, financial condition or results of operations.
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ITEM 1B. UNRESOLVED STAFF COMMENTS
Not applicable.
ITEM 2. PROPERTIES
Our address is 2925 Richmond Avenue, Suite 1200, Houston, Texas 77098. Our corporate offices are rented on a month-to-month basis at a current rent of
approximately $1,700 per month. We believe these facilities will be adequate for our needs during the foreseeable future.
In connection with the VectorVision acquisition, we assumed a lease agreement for 5,000 square feet of office and warehouse space which commenced
October 1, 2017 and will continue through February 2023.
ITEM 3. LEGAL PROCEEDINGS
From time to time, we may become involved in various lawsuits and legal proceedings, which arise 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 harm our business. We are currently not aware
of any such legal proceedings or claims that will have, individually or in the aggregate, a material adverse effect on our business, financial condition or
operating results.
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
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ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF
EQUITY SECURITIES
PART II
Market Information
The Company’s common stock is listed on The Nasdaq Capital Market under the symbol “GHSI.”
Stockholders
As of March 25, 2022, there were approximately 77 record holders of the Company’s common stock. The actual number of holders of the Company’s
common stock is greater than this number of record holders, and includes stockholders who are beneficial owners, but whose shares are held in street name
by brokers or held by other nominees. This number of holders of record also does not include stockholders whose shares may be held in trust by other
entities.
Dividend Policy
The Company has not declared nor paid any cash dividend on its common stock, and it currently intends to retain future earnings, if any, to finance the
expansion of its business, and the Company does not expect to pay any cash dividends in the foreseeable future. The decision whether to pay cash
dividends on its common stock will be made by the Company’s board of directors, in its discretion, and will depend on the Company’s financial condition,
results of operations, capital requirements and other factors that its board of directors considers significant.
ITEM 6. [RESERVED]
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
You should read the following discussion and analysis of our financial condition and results of operations together with and our consolidated financial
statements and the related notes appearing elsewhere in this Annual Report on Form 10-K. In addition to historical information, this discussion and
analysis contains forward-looking statements that involve risks, uncertainties and assumptions. Our actual results may differ materially from those
discussed below. Factors that could cause or contribute to such differences include, but are not limited to, those identified below, and those discussed in the
section titled “Risk Factors” included elsewhere in this Annual Report on Form 10-K.
Overview
We are a clinical nutrition company that develops and distributes clinically supported nutrition, medical foods and dietary supplements. The Company
offers a portfolio of science-based, clinically supported products designed to support healthcare professionals and providers, and their patients and
consumers.
We see opportunities to grow our business and create value by acquiring, developing and distributing condition-specific, clinically proven nutrition,
medical foods and dietary supplements. Our portfolio of science-based, clinically supported products support healthcare professionals, their patients, and
consumers in achieving health goals.
Our profile and focus fundamentally changed with the acquisition of Activ Nutritional, LLC (“Activ” or “Viactiv,” as the context requires) in June 2021,
the owner and distributor of the Viactiv® line of dietary supplements for bone health, immune health and other applications.
The acquisition and integration of the Viactiv line of products has changed our financial position, market profile and brand focus, and has also expanded
our search for additional business opportunities in the short-term, both internal and external.
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We believe the Activ acquisition has added valuable attributes, including (1) Viactiv’s brand awareness and acceptance from the consumer; (2) experienced
management; (3) established distribution networks and relationships; (4) product development potential; and (5) a long track record of revenue growth and
profitability.
● Brand awareness – Viactiv was initially launched by industry leaders Mead Johnson/Johnson & Johnson approximately twenty years ago, and we
believe this history, along with the product’s marketing campaigns, taste profile and receipt of consistently positive consumer reviews, have led to
strong consumer awareness and acceptance.
● Experienced management – As part of the Activ acquisition, we appointed Craig Sheehan as our Chief Commercial Officer. Mr. Sheehan was the
senior executive responsible for the Viactiv brand as a member of the executive leadership team of Adare.
● Established distribution – Viactiv’s products are currently marketed through many of the nation’s largest retailers, including, among others,
Walmart (retail and online), Target, CVS and Amazon.
● Track record of profitability – Viactiv generated net revenues of approximately $11,900,000 in 2020 and operating income of approximately
$1,200,000 in 2020. For the year ended December 31, 2021, on a pro forma basis, our total revenues would have been approximately $12,766,000
and the Viactiv products would have accounted for 94% of our pro forma total revenues for the year. We expect the acquisition of Viactiv to
contribute increasing revenue and consistent operating margins and profitability, as well as a multitude of growth opportunities, to our Company.
Availability of Capital
We may continue to seek to raise additional debt and/or equity capital to fund future operations and acquisitions as necessary, but there can be no
assurances that we will be able to secure such additional financing in the amounts necessary to fully fund our operating requirements on acceptable terms or
at all. Over time, if we are unable to access sufficient capital resources on a timely basis, we may be forced to reduce or discontinue our product
development programs and curtail or cease operations.
The Company will continue to incur significant expenses related to the commercialization of its products and with respect to its efforts to build its
infrastructure, expand its operations, and execute on its business plans. Even if profitability is achieved in the future, the Company may not be able to
sustain profitability on a consistent basis. The Company expects to continue to incur substantial losses and negative cash flow from operations for the
foreseeable future.
The Company does not have any credit facilities as a source of present or future funds. If the Company raises additional funds through the issuance of
equity or convertible debt securities, the percentage ownership of the Company’s stockholders could be significantly diluted, and these newly issued
securities may have rights, preferences or privileges senior to those of existing stockholders. Debt financing, if obtained, may involve agreements that
include covenants limiting or restricting the ability to take specific actions, such as incurring additional debt, would increase expenses and may require that
Company assets secure such debt.
Recent Developments
Closing of February 2022 Securities Offering
On February 23, 2022, we closed an offering of our securities, and issued and sold (i) 32,550,000 shares of common stock at a purchase price of $0.30 per
share, (ii) Series A Warrants to purchase 37,000,000 shares of common stock at an exercise price of $0.37 per share for a term of five years, (iii) Series B
Warrants to purchase 37,000,000 shares of common stock at an exercise price of $0.37 per share for a term of 18 months, and (iv) Pre-Funded Warrants to
purchase 4,450,000 shares of common stock at a combined price of $0.30 per share. The net proceeds to us, after deducting the placement agent fees and
estimated offering expenses payable by us, were approximately $10.0 million. In the event that the Company fails to deliver shares by the required delivery
date upon exercise of the warrants, the Company may be subject to cash penalties in an amount up to $20 per trading day for each $1,000 of warrant shares
until such shares are delivered. In addition, if the warrant holder purchases shares in the market following the Company’s failure to deliver shares upon
exercise of the warrants, the Company will be required to cover the cost of any buy-ins and, at the option of the warrant holder, either reinstate the portion
of the warrant for the shares that were not delivered or deliver the number of shares that should have been issued.
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Nasdaq Notification of Failure to Satisfy a Continued Listing Rule or Standard
On January 25, 2022, we received a notification from Nasdaq related to our failure to maintain a minimum bid price of $1 per share. Based upon the
closing bid price for the last 30 consecutive business days, we no longer meet this requirement. However, the Nasdaq Listing Rules also provide us a
compliance period of 180 calendar days in which to regain compliance. Accordingly, if at any time from the date of this notice until July 25, 2022, the
closing bid price our common stock is at least $1 for a minimum of ten consecutive business days, Nasdaq will provide us with written confirmation of
compliance and the matter will be closed. If we do not regain compliance with the minimum bid price requirement by July 25, 2022, we may be afforded a
second 180 calendar day period to regain compliance. To qualify, we would be required to meet all other initial listing standards, except for the minimum
bid price requirement. In addition, we would be required to notify Nasdaq of our intent to cure the deficiency during the second compliance period. If we
do not regain compliance with the minimum bid price requirement by the end of the compliance period (or the second compliance period, if applicable),
our common stock will become subject to delisting. If we are delisted from Nasdaq, our common stock may be eligible for trading on an over-the-counter
market. If we are not able to obtain a listing on another stock exchange or quotation service for our common stock, it may be extremely difficult or
impossible for stockholders to sell their shares. We intend to monitor the closing bid price of our common stock and may be required to seek approval from
our stockholders to effect a reverse stock split of the issued and outstanding shares of our common stock. However, there can be no assurance that the
reverse stock split would be approved by our stockholders. Further, there can be no assurance that the market price per new share of our common stock
after the reverse stock split will remain unchanged or increase in proportion to the reduction in the number of old shares of our common stock outstanding
before the reverse stock split. Even if the reverse stock split is approved by our stockholders, there can be no assurance that we will be able to regain
compliance with the minimum bid price requirement or will otherwise be in compliance with other Nasdaq listing rules.
Launch of Direct-to-Consumer Online Store for Viactiv Products
During January 2022, we launched our new e-commerce venue through a Shopify store for our Viactiv line of products. The new e-commerce venue offers
Viactiv customers the option of shopping via retail outlets (e.g., grocery, pharmacy, etc.) or online through those same retail websites or directly through
our new branded website.
Launch of Viactiv® Omega BOOSTTM Gel Bites
We recently launched Viactiv® Omega BOOSTTM Gel Bites, our first expansion of the Viactiv brand since we acquired it in June 2021. The 1,200 mg
Omega-3 gel bites are designed to provide total body support, including cardiovascular, brain, joint and eye health. The new dosage form is able to provide
the potency of large, hard-to-swallow soft gels, in a great tasting chewable format that has ten times more Omega-3 than the leading fish oil gummies. The
gel bite dosage form has been shown to have better absorption and fewer digestive issues than regular soft gel formulas, as well as no unpleasant fishy
aftertaste and no sugar, which can all be associated with certain other Omega-3 products.
VectorVision Restructuring
During December 2021, as part of management’s comprehensive evaluation of our business in order to focus on those brands and lines of business that
management believes provide the greatest growth opportunities, we determined to restructure the operations of our VectorVision medical device business.
The Company has substantially wound down the day-to-day operations of VectorVision, which is expected to significantly reduce costs, and to instead
explore various alternative ways to preserve, manage and exploit our various related intellectual property rights, including our U.S. patents, associated with
the VectorVision technology, which rights we believe are valuable and marketable. We are exploring both domestic and international business
opportunities, such as licensing and distribution arrangements, with experienced parties, which could assist us in the economic exploitation of these
intellectual property rights. As a result of this change to the VectorVision business strategy, management believes that it will be able to better focus its
efforts and deploy capital to more growth oriented brands and product lines, like Viactiv, and other products in development, that it hopes to expeditiously
bring to market in 2022.
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Supply Chain Constraints; Inflationary Pressures
We have been experiencing supply chain constraints due to the COVID-19 pandemic. These constraints began in approximately December 2021 and have
continued into 2022. These constraints have impacted our ability the Company’s ability to obtain inventory to fulfill customer orders for its Viactiv branded
products and may continue to impact its ability to fulfill customer orders going forward which would have a material adverse effect on the Company’s
business and results of operations. The Company continues to experience challenges to meet customer demands, largely because of broad-based shortages
in suppliers’ labor which impact the availability of many critical components in the Company’s supply chain and distribution. The Company is subject to
out-of-stock fees to certain retailers in the event that the Company is unable to adequately maintain certain inventory levels of our Viactiv products.
Additionally, the Company and its suppliers are experiencing significant broad-based inflation of manufacturing and distribution costs as well as
transportation challenges. The Company expects shortages to continue at least through the first half of 2022 and input cost inflation to continue at least
throughout 2022.
Strategic Objectives, Goals and Strategies
The Company’s ability to maximize shareholder value requires that we build a solid corporate foundation and demonstrate growth and commercial success
on top of that foundation. Guardion took a number of steps in 2021 to strengthen our corporate foundation, including acquiring Viactiv, winding down
Vector Vision, hiring key team members and streamlining operations.
Guardion enters 2022 with three primary objectives:
● Demonstrate Commercial Success;
● Strengthen our Commercial Engine; and
● Strengthen our Clinical Nutrition Strategy.
Recent Accounting Pronouncements
In September 2016, the Financial Accounting Standards Board (the “FASB”) issued Accounting Standards Update (“ASU”) 2016-13, Credit Losses -
Measurement of Credit Losses on Financial Instruments (“ASU 2016-13”). The standard significantly changes how entities will measure credit losses for
most financial assets, including accounts and notes receivables. The standard will replace today’s “incurred loss” approach with an “expected loss” model,
under which companies will recognize allowances based on expected rather than incurred losses. Entities will apply the standard’s provisions as a
cumulative-effect adjustment to retained earnings as of the beginning of the first reporting period in which the guidance is effective. As a smaller reporting
company, ASU 2016-13 will be effective for the Company beginning January 1, 2023, with early adoption permitted. The Company is currently assessing
the impact of adopting this standard on the Company’s financial statements and related disclosures.
In August 2020, the FASB issued ASU 2020-06, Debt—Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging—
Contracts in Entity’s Own Equity (Subtopic 815-40) (“ASU 2020-06”). ASU 2020-06 reduces the number of accounting models for convertible debt
instruments by eliminating the cash conversion and beneficial conversion models. As a result, a convertible debt instrument will be accounted for as a
single liability measured at its amortized cost as long as no other features require bifurcation and recognition as derivatives. For contracts in an entity’s own
equity, the type of contracts primarily affected by this update are freestanding and embedded features that are accounted for as derivatives under the current
guidance due to a failure to meet the settlement conditions of the derivative scope exception. This update simplifies the related settlement assessment by
removing the requirements to (i) consider whether the contract would be settled in registered shares, (ii) consider whether collateral is required to be
posted, and (iii) assess shareholder rights. ASU 2020-06 is effective January 1, 2024 for the Company and the provisions of this update can be adopted
using either the modified retrospective method or a fully retrospective method. Early adoption is permitted, but no earlier than January 1, 2021.
At December 31, 2020, the Company recorded a derivative liability of $25,978 related to 10,417 warrants issued in 2019 because the settlement provisions
of the warrants contained language that the shares underlying the warrants are required to be registered. Effective January 1, 2021, the Company early
adopted ASU 2020-06 using the modified retrospective approach. ASU 2020-06 removed the requirement to consider if the warrants would be settled in
registered shares, and accordingly, the adoption of ASU 2020-06 resulted in a decrease to accumulated deficit of $25,978 and a decrease in derivative
warrant liability of $25,978 on January 1, 2021.
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In May 2021, the FASB issued ASU 2021-04, Earnings Per Share (Topic 260), Debt — Modifications and Extinguishments (Subtopic 470-50),
Compensation — Stock Compensation (Topic 718), and Derivatives and Hedging — Contracts in Entity’s Own Equity (Subtopic 815-40): Issuer’s
Accounting for Certain Modifications or Exchanges of Freestanding Equity-Classified Written Call Options (“ASU 2021-04”). ASU 2021-04 provides
guidance as to how an issuer should account for a modification of the terms or conditions or an exchange of a freestanding equity-classified written call
option (i.e., a warrant) that remains classified after modification or exchange as an exchange of the original instrument for a new instrument. An issuer
should measure the effect of a modification or exchange as the difference between the fair value of the modified or exchanged warrant and the fair value of
that warrant immediately before modification or exchange and then apply a recognition model that comprises four categories of transactions and the
corresponding accounting treatment for each category (equity issuance, debt origination, debt modification, and modifications unrelated to equity issuance
and debt origination or modification). ASU 2021-04 is effective for all entities for fiscal years beginning after December 15, 2021, including interim
periods within those fiscal years. An entity should apply the guidance provided in ASU 2021-04 prospectively to modifications or exchanges occurring on
or after the effective date. Early adoption is permitted for all entities, including adoption in an interim period. If an entity elects to early adopt ASU 2021-
04 in an interim period, the guidance should be applied as of the beginning of the fiscal year that includes that interim period. The adoption of ASU 2021-
04 is not expected to have any impact on the Company’s consolidated financial statement presentation or disclosures.
Other recent accounting pronouncements issued by the FASB, its Emerging Issues Task Force, the American Institute of Certified Public Accountants, and
the Securities and Exchange Commission did not or are not believed by management to have a material impact on the Company’s present or future
financial statements.
Concentration of Risk
Cash balances are maintained at large, well-established financial institutions. At times, cash balances may exceed federally insured limits. Insurance
coverage limits are $250,000 per depositor at each financial institution. We have never experienced any losses related to these balances.
Revenue
During the year ended December 31, 2021, we had two customers that accounted for 50% and 16% of total revenue, respectively. During the year ended
December 31, 2020, we had one customer that accounted for 49% of our total revenue. No other customer accounted for more than 10% of revenue during
the years ended December 31, 2021 or 2020.
Accounts receivable
As of December 31, 2021, we had accounts receivable from one customer which comprised approximately 81% of accounts receivable. As of December
31, 2020, we had accounts receivable from two customers which comprised approximately 50% and 48%, respectively of accounts receivable. No other
customer accounted for more than 10% of accounts receivable as of December 31, 2021 or 2020.
Purchases from vendors
During the year ended December 31, 2021, we utilized one manufacturer for most our production and packaging of clinical nutrition products. Total
purchases from this manufacturer accounted for approximately 70% of all purchases. During the year ended December 31, 2020, our largest vendor
accounted for approximately 38% all purchases. No other vendor accounted for more than 10% of purchases during the years ended December 31, 2021 or
2020.
Accounts payable
As of December 31, 2021, one vendor accounted for 46% of total accounts payable. As of December 31, 2020, our largest two vendors accounted for 18%
and 13% of the total accounts payable, respectively. No other vendor accounted for more than 10% of accounts payable as of December 31, 2021 or 2020.
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Critical Accounting Policies and Estimates
Our financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America (“GAAP”). The
preparation of our financial statements in conformity with GAAP requires management to make certain estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and reported amounts of expenses
during the reporting period. Actual results could differ from those estimates. Our financial statements included herein include all adjustments, consisting of
only normal recurring adjustments, necessary to present fairly our financial position, results of operations and cash flows.
The following critical accounting policies affect the more significant judgments and estimates used in the preparation of our financial statements.
Revenue Recognition
We recognize revenue in accordance with Accounting Standards Codification (ASC) 606, Revenue from Contracts with Customers. Revenue is recognized
when control of promised goods or services is transferred to the customer in an amount that reflects the consideration to which we expect to be entitled in
exchange for those products or services. We review our sales transactions to identify contractual rights, performance obligations, and transaction prices,
including the allocation of prices to separate performance obligations, if applicable.
All products sold by us are distinct individual products and are offered for sale as finished goods only, and there are no performance obligations required
post-shipment for customers to derive the expected value from them. Contracts with customers contain no incentives or discounts that could cause revenue
to be allocated or adjusted over time.
Shipping and handling activities are performed before the customer obtains control of the goods and therefore represent a fulfillment activity rather than a
promised service to the customer. Payments for sales of medical foods and dietary supplements are generally made by approved credit cards. Payments for
medical device sales are generally made by check, credit card, or wire transfer. Historically we have not experienced any significant payment delays from
customers.
In certain circumstances, returns of products are allowed. A right of return does not represent a separate performance obligation, but because customers are
allowed to return products, the consideration to which we expect to be entitled is variable. Upon evaluation of historical product returns, we determined that
less than 1% of products are returned, and therefore believe it is probable that such returns will not cause a significant reversal of revenue in the future. Due
to the insignificant amount of historical returns as well as the standalone nature of our products and assessment of performance obligations and transaction
pricing for our sales contracts, we do not currently maintain a contract asset or liability balance at this time. We assess our contracts and the reasonableness
of out conclusions on a quarterly basis.
Inventories
Inventories are stated at the lower of cost or net realizable value, with cost determined on a first-in, first-out (“FIFO”) basis. We record adjustments to our
inventory for estimated obsolescence or diminution in net realizable value equal to the difference between the cost of the inventory and the estimated net
realizable value. The difference is recognized as a loss in the period in which it occurs. Once inventory has been written down, it creates a new cost basis
for inventory that is not subsequently written up.
Intangible Assets
Amortizable finite-lived identifiable intangible assets consist of a trade name and customer relationships acquired in the acquisition of Activ, effective June
1, 2021 and are stated at cost less accumulated amortization. The trade name and customer relationships are being amortized over a period of 10 years. We
follow ASC 360 in accounting for finite-lived intangible assets, which requires impairment losses to be recorded when indicators of impairment are present
and the undiscounted cash flows estimated to be generated by the assets are less than the assets’ carrying amounts.
In connection with the June 2021 acquisition of Activ we identified amortizable intangible assets totaling $11,900,000, consisting of trade names of
$9,200,000 and customer lists of $2,700,000. The trade name and customer relationship are being amortized over their expected useful lives of 10 years.
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At December 31, 2021 and December 31, 2020, we also had a trademark for $50,000 classified as an indefinite-lived intangible asset.
Goodwill
We evaluate goodwill for impairment annually on December 31, or more frequently if a triggering event occurs. Goodwill impairment exists when the fair
value of goodwill is less than its carrying value. The Company is the sole reporting unit as of December 31, 2021. During the fourth quarter of 2021, we
experienced a sustained decrease in the Company’s share price on NASDAQ, and as of December 31, 2021, our market capitalization was below the
carrying value of our net assets. We concluded that this was an impairment triggering event and concluded that there was goodwill impairment of
$11,893,134 for the year ended December 31, 2021. Following the impairment, we had no remaining goodwill as of December 31, 2021.
However, we do not believe that the impairment charge reflects a diminution in the economic value of the Viactiv business as determined at the June 1,
2021 acquisition date, or its future performance potential. Although we have experienced certain inventory supply and supply chain challenges during the
latter part of 2021 that have continued into 2022, Viactiv’s financial performance for June through December 2021, has generally met management’s
expectations.
Business Combinations
We account for our business combinations using the acquisition method of accounting where the purchase consideration is allocated to the tangible and
intangible assets acquired, and liabilities assumed, based on their respective fair values as of the acquisition date. The excess of the fair value of the
purchase consideration over the estimated fair values of the net assets acquired is recorded as goodwill. When determining the fair values of assets acquired
and liabilities assumed, management makes significant estimates and assumptions, especially with respect to intangible assets. Critical estimates in valuing
intangible assets include, but are not limited to, expected future cash flows, which includes consideration of future growth and margins, future changes in
technology, expected cost and time to develop in-process research and development, brand awareness and discount rates. Fair value estimates are based on
the assumptions that management believes a market participant would use in pricing the asset or liability.
Stock-Based Compensation
We periodically issue stock-based compensation to officers, directors, contractors and consultants for services rendered. Such issuances vest and expire
according to terms established at the issuance date.
Stock-based payments to officers, directors, consultants, contractors, and employees, which include grants of employee stock options, are recognized in the
financial statements based on their fair values. Stock option grants, which are generally time or performance vested, are measured at the grant date fair
value and charged to operations on a straight-line basis over the vesting period. The fair value of stock options is determined utilizing the Black-Scholes
option-pricing model, which is affected by several variables, including the risk-free interest rate, the expected dividend yield, the expected life of the equity
award, the exercise price of the stock option as compared to the fair market value of the common stock on the grant date and the estimated volatility of the
common stock over the term of the equity award.
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Recent Trends – Market Conditions
We have been experiencing supply chain constraints due to the COVID-19 pandemic. These constraints began in approximately December 2021 and have
continued into 2022. These constraints have impacted our ability to obtain inventory to fulfill customer orders for our Viactiv brand and may continue to
impact our ability to fulfill customer orders going forward. We continue to experience challenges to meet customer demands, largely because of broad-
based shortages in suppliers’ labor which impact the availability of many critical components in our supply chain and distribution. We are subject to out-of-
stock fees to certain retailers in the event that we are unable to adequately maintain certain inventory levels of our Viactiv products. Additionally, we and
our suppliers are experiencing significant broad-based inflation of manufacturing and distribution costs as well as transportation challenges. We expect
shortages to continue at least through the first half of 2022 and input cost inflation to continue at least throughout 2022.
Plan of Operations
General Overview
We are focused on building a leading clinical nutrition company with the objective that we become a top performing growth company. Our team continues
to assess the business, the core fundamentals, and the market opportunity for our products and services. With the acquisition of Viactiv brand and business
in June 2021, management believes that we will be able to accelerate our growth and development.
Our team is focused on building a strong foundation by developing a business model and infrastructure that is designed for long-term commercial success.
This process will take time, but we are taking important steps required to build a stronger company. Based on the availability of sufficient funding, we
intend to increase our commercialization and business development activities, including engaging in new product development and further strategic
acquisitions, to capitalize on growth opportunities.
Over the long-term, we believe one of the critical keys to our success will be to create value in well-differentiated and robust brands through strong
clinically proven claims that address consumer needs in growing markets, both domestically and internationally. We are committed to bringing compelling
products to market under meaningful and differentiated brands supported by strong science.
We are currently working on a number of initiatives that we believe will help achieve these long-term goals. These include the initiatives described below.
Growth initiatives focused on increasing revenue and bringing compelling products to market under meaningful and differentiated brands that are
supported by strong science.
● Strengthen our Clinical Nutrition Strategy: success with this objective requires that we continue to advance clinical evidence around our existing and
future products, work with manufacturers and suppliers to leverage our partner’s innovations and increase awareness of our products and efforts with
the healthcare community.
● Brand Strategy – Brands are an important part of our strategy, and our team is evaluating the best ways to manage our brand portfolio. In particular, we
are seeking to develop a strategy that best leverages Viactiv’s strong consumer awareness and acceptance.
● Scientific Work – Our team continuously evaluates scientific journals and clinical evidence to improve the science behind our existing products and
drive our product development process. In addition, we are working with health care professionals to increase clinical evidence on existing products.
● Product Strategy – Our team is evaluating our current product portfolio and seeking opportunities to improve or discontinue certain of our existing
products and technologies and develop new ones. We are focused on differentiated formulations, product taste, compelling product formats, and
competitive cost structures.
● Sales Channels – Our team is evaluating opportunities to increase product commercialization through better access to sales channels. The Viactiv
products enjoy established distribution through traditional retailers and third-party E-Commerce retailers. Our other clinical nutrition products are sold
directly to consumers via our website. By leveraging our collective experience selling in these channels, we seek to increase the distribution of our
products.
● Existing Business Lines – Our team is evaluating our non-Viactiv business lines to determine their fit in the strategic direction of our Company.
Product development and successful commercialization can be an expensive and time-consuming process. Management intends to focus on those
products and technologies that possess the greatest chance for commercial success within a reasonable period of time and with a reasonable
deployment of capital.
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Results of Operations
Through December 31, 2021, we have primarily been engaged in product development, commercialization, integration of Activ and raising capital. We
have incurred and will continue to incur significant expenditures for the development of our products and intellectual property, which includes nutrition,
medical foods and supplements. These products support healthcare professionals, their patients and consumers in achieving health goals. With the
acquisition of the Viactiv brand and business effective June 1, 2021, and its successful integration into our operations since that date, we have established a
significant baseline level of gross revenues.
At December 31, 2021, we ceased operations of VectorVision. The Company plans to explore various alternative ways to preserve, manage and exploit the
various related intellectual property rights, including our U.S. patents, associated with the VectorVision technology, which rights we believe are valuable
and marketable.
We previously had two reportable segments, a Clinical Nutrition Segment and a Medical Devices Segment. In December 2021, we announced the winding
down of VectorVision, which, while representing the bulk of the medical device business, only accounted for approximately 4% of total Company revenue
in 2021. As a result, the Company no longer expects to generate any material revenues or expenses in the Medical Devices Segment, and accordingly, as of
December 31, 2021, the Company is the sole reporting unit.
The results of operations for the year ended December 31, 2021 are not comparable to the results of operations for the year ended December 31, 2020, as
our 2021 operations included the Viactiv business for the seven months ended December 31, 2021.
Comparison of Years Ended December 31, 2021 and 2020
Revenue
Cost of goods sold (includes write down of inventory of
approximately $184,000 during 2021 and $972,000 during
2020)
Gross Profit (Loss)
Operating Expenses:
Research and development
Sales and marketing
General and administrative
Goodwill impairment
Acquisition transaction costs
Costs related to resignation of former officer (including the
reversal of previously recognized stock compensation
expense of approximately $965,000 during the year ended
December 31, 2020)
Impairment loss on equipment
Loss on disposal of equipment
Loss on lease termination, net
Total Operating Expenses
Loss from Operations
Other Expense (Income):
Interest expense
Interest income
Change in fair value of derivative warrants
Years Ended
December 31,
2021
2020
Change
$
7,233,118 $
1,889,844 $
5,343,274
283%
4,122,684
3,110,434
64,358
2,324,569
11,204,885
11,893,134
2,103,680
-
-
160,137
106,477
27,857,240
(24,746,806)
-
1,797
-
1,946,635
(56,791)
160,978
1,450,205
7,450,245
-
-
(615,936)
30,948
18,500
-
8,494,940
(8,551,731)
7,271
-
12,655
(8,571,657) $
2,176,049
3,167,225
(96,620)
874,364
3,754,640
11,893,134
2,103,680
615,936
(30,948)
141,637
106,477
19,362,300
(16,195,075)
7,271
1,797
12,655
(16,173,352)
112%
(5,577%)
(60%)
60%
50%
766%
230%
191%
189%
Net Loss
$
(24,745,009) $
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Revenue
For the year ended December 31, 2021, revenue from product sales was approximately $7,233,000 compared to revenue of approximately $1,890,000 for
the year ended December 31, 2020, resulting in an increase of approximately $5,343,000 or 283%. The increase is primarily driven by the approximate
$6,473,000 of revenue generated during the year by our Viactiv product line.
Cost of Goods Sold
For the year ended December 31, 2021, cost of goods sold was approximately $4,123,000 compared to cost of goods sold of approximately $1,947,000 for
the year ended December 31, 2020, resulting in an increase of approximately $2,176,000 or 112%. This increase is primarily driven by the approximate
$3,482,000 cost of sales related to our Viactiv product line.
Gross Profit (Loss)
For the year ended December 31, 2021, gross profit was approximately $3,110,000 compared to gross loss of approximately $(57,000) for the year ended
December 31, 2020, resulting in an increase of approximately $3,167,000 or 5,577%. Gross profit (loss) represented 43% of revenues for the year ended
December 31, 2021. Approximately $2,991,000 or 96% of the 2021 gross profit was generated from the sale of the Viactiv products. Gross profit (loss)
represented (3)% of revenue for the year ended December 31, 2020. During 2020 we recorded an inventory write down of approximately $972,000 which
was attributable to the deterioration of the forecasted marketability of certain of the Company’s inventory.
Research and Development
For the year ended December 31, 2021, research and development costs were approximately $64,000 compared to costs of approximately $161,000 for the
year ended December 31, 2020, resulting in a decrease of approximately $97,000 or 60%. Research and development costs during the year ended
December 31, 2021 consist primarily of clinical studies related to our medical foods and nutraceuticals, as compared to costs of engineering efforts related
to our medical devices during the year ended December 31, 2020.
Sales and Marketing
For the year ended December 31, 2021, sales and marketing expenses were approximately $2,325,000 compared to expenses of approximately $1,450,000
for the year ended December 31, 2020. The increase in sales and marketing expenses of approximately $874,000 or 60% compared to the prior period was
primarily due to the addition of our Viactiv line of products.
-47-
General and Administrative
For the year ended December 31, 2021, general and administrative expenses were approximately $11,205,000 compared to expenses of approximately
$7,450,000 for the year ended December 31, 2020. The increase of approximately $3,755,000 or 50% compared to the prior period was primarily due to an
increase in stock-based compensation of approximately $251,000, general and administrative costs associated with Activ of approximately $585,000, an
increase in professional fees of approximately $177,000, and an increase in directors’ and officers’ insurance premiums of approximately $161,000.
Acquisition Transaction Costs
For the year ended December 31, 2021, acquisition transaction costs were approximately $2,104,000, all of which relate to our acquisition of Activ. We did
not have any acquisition costs in 2020.
Goodwill Impairment
We evaluate goodwill for impairment annually on December 31, or more frequently if a triggering event occurs. Goodwill impairment exists when the fair
value of goodwill is less than its carrying value. The Company is the sole reporting unit as of December 31, 2021. During the fourth quarter of 2021, we
experienced a sustained decrease in the Company’s share price on NASDAQ, and as of December 31, 2021, our market capitalization was below the
carrying value of our net assets. We concluded that this was an impairment triggering event and concluded that there was goodwill impairment of
$11,893,134 for the year ended December 31, 2021. Following the impairment charge, we had no remaining goodwill as of December 31, 2021.
However, we do not believe that the impairment charge reflects a diminution in the economic value of the Viactiv business as determined at the June 1,
2021 acquisition date, or its future performance potential. Although we have experienced certain inventory supply and supply chain challenges during the
latter part of 2021 that that have continued into 2022, Viactiv’s financial performance for June through December 2021, has generally met management’s
expectations.
Costs Related to Resignation of Former Officer
Effective June 15, 2020, Michael Favish resigned as Chief Executive Officer and as an employee of our Company and resigned from our board of directors.
Terms of the settlement agreement included the continuation of his previous annual salary of $325,000 during the twelve months following his termination.
The full amount of stock compensation costs was recorded in costs related to resignation of former officer.
Mr. Favish’s unvested options at the time of his separation were forfeited. All compensation from prior periods related to these unvested options was
reversed, resulting in an adjustment to stock compensation expense during the year ended December 31, 2020 of approximately $(965,000) that was
recorded in costs related to resignation of former officer.
In connection with Mr. Favish’s separation, the expiration date of his vested stock options was extended for twelve months from June 15, 2020. In
accounting for the modification, we calculated the fair value of the vested options immediately before modification and immediately following the
modification and recorded incremental stock compensation charge of approximately $24,000 in costs related to resignation of former officer.
Impairment Loss on Equipment
During June 2020, in an effort to reduce costs and focus management’s attention on other aspects of our business, we began to wind down the TCD
business. The wind down was completed in the third quarter of 2020. The business held a group of ultrasound machines as fixed assets. We sold the
machines in the year ended December 31, 2020. An impairment charge of approximately $31,000 was recorded in the consolidated statements of operations
for the year ended December 31, 2020. There was no similar charge recorded in 2021.
-48-
Loss on Disposal of Fixed Assets
For the year ended December 31, 2021, loss on disposal of fixed assets was approximately $160,000 as compared to a loss of approximately $19,000 for
the year ended December 31, 2020, an increase of approximately $142,000 or 766% compared to the prior period. The current year losses are attributable to
the termination of our headquarters lease in San Diego, California, and disposal of related fixed assets.
Loss on Lease Termination
For the year ended December 31, 2021, impairment loss on lease termination was approximately $106,000. During 2021, we terminated our corporate
office and warehouse lease in San Diego, California and recorded a loss on lease termination. There was no comparable charge in the prior period.
Interest Expense
For the year ended December 31, 2020, interest expense was approximately $7,000. There was no interest expense during the year ended December 31,
2021. In 2020, the interest expense resulted from the financing of certain insurance policies of the Company.
Change in Fair Value of Derivative Warrants
During 2020, an increase in the fair value of derivative warrant liabilities of approximately $13,000 was recorded, and at December 31, 2020, the balance
of derivative warrant liabilities was $0.
Net Loss
For the year ended December 31, 2021, we incurred a net loss of approximately $24,745,000 compared to a net loss of approximately $8,572,000 for the
year ended December 31, 2020. The increase in net loss of approximately $16,173,000 or 189% compared to the prior year period was primarily due to
goodwill impairment of approximately $11,893,000, transaction costs associated with the acquisition of Activ of approximately $2,104,000, coupled with
general and administrative costs added as a result of the acquisition.
Liquidity and Capital Resources
For the year ended December 31, 2021, we incurred a net loss of approximately $24,745,000 and used cash in operating activities of approximately
$10,644,000. At December 31, 2021, we had cash on hand of approximately $4,094,000, short term investments of approximately $4,996,000 and working
capital of approximately $10,910,000.
On February 23, 2022, we closed an offering of our securities, and issued and sold (i) 32,550,000 shares of common stock at a purchase price of $0.30 per
share, (ii) Series A Warrants to purchase 37,000,000 shares of common stock at an exercise price of $0.37 per share for a term of five years, (iii) Series B
Warrants to purchase 37,000,000 shares of common stock at an exercise price of $0.37 per share for a term of 18 months, and (iv) Pre-Funded Warrants to
purchase 4,450,000 shares of common stock at a combined price of $0.30 per share. The net proceeds to us, after deducting the placement agent fees and
estimated offering expenses payable by us, were approximately $10.0 million. In the event that the Company fails to deliver shares by the required delivery
date upon exercise of the warrants, the Company may be subject to cash penalties in an amount up to $20 per trading day for each $1,000 of warrant shares
until such shares are delivered. In addition, if the warrant holder purchases shares in the market following the Company’s failure to deliver shares upon
exercise of the warrants, the Company will be required to cover the cost of any buy-ins and, at the option of the warrant holder, either reinstate the portion
of the warrant for the shares that were not delivered or deliver the number of shares that should have been issued.
Notwithstanding the net loss for 2021, management believes that our current cash balance is sufficient to fund operations for in excess of one year from the
date of the Company’s 2021 financial statements are issued.
Our financing has historically come primarily from the issuance of convertible notes, promissory notes and from the sale of common and preferred stock.
We will continue to incur significant expenses for continued commercialization activities related to our clinical nutrition product lines and building our
infrastructure. Development and commercialization of clinical nutrition products involves a lengthy and complex process. Additionally, our long-term
viability and growth may depend upon the successful development and commercialization of new complementary products or product lines.
-49-
We may continue to seek to raise additional debt and/or equity capital to fund future operations and acquisitions as necessary, but there can be no
assurances that we will be able to secure such additional financing in the amounts necessary to fully fund our operating requirements on acceptable terms or
at all. Over time, if we are unable to access sufficient capital resources on a timely basis, we may be forced to reduce or discontinue our product
development programs and curtail or cease operations.
Sources and Uses of Cash
The following table sets forth the Company’s major sources and uses of cash for each of the following periods:
Net cash used in operating activities
Net cash used in investing activities
Net cash provided by financing activities
Net increase (decrease) in cash
Operating Activities
Years Ended
December 31,
2021
2020
$
$
(10,644,416) $
(31,011,401)
37,231,012
(4,424,805) $
(8,013,929)
(34,733)
5,451,892
(2,596,770)
Net cash used in operating activities was approximately $10,644,000 during the year ended December 31, 2021, as compared to approximately $8,014,000
used during the comparable prior year period. The change in operating activities stems primarily from our acquisition of the Viactiv business, the associated
purchases of inventory and increases in directors and officers insurance, professional fees and consulting and labor costs during 2021.
Investing Activities
Net cash used in investing activities was approximately $31,011,000 for the year ended December 31, 2021 and approximately $35,000 for the year ended
December 30, 2020. For the year ended December 31, 2021, we purchased approximately $71,000,000 in U.S. Treasury Bills which was offset by sales and
maturities of those U.S. Treasury Bills of approximately $66,000,000.
As of December 31, 2021, we have approximately $5,000,000 in U.S. Treasury Bills representing the net of those purchases and sales, which is recorded as
short-term investments on our Balance Sheet. In 2021, we also used cash of approximately $26,000,000 for the acquisition of Activ and $77,000 for
purchases of property and equipment. The net cash used in investing activities during the year ended December 31, 2020 was approximately $35,000 and
was primarily for the purchase of property and equipment.
Financing Activities
Net cash provided by financing activities was approximately $37,231,000 for the year ended December 31, 2021 and consisted of the sale of common stock
with net proceeds of approximately $33,663,000 and warrant exercises during the period with proceeds of approximately $3,568,000. Net cash provided by
financing activities was approximately $5,452,000 for the year ended December 31, 2020 and is all attributable to the exercise of warrants.
JOBS Act
On April 5, 2012, the JOBS Act was enacted. Section 107 of the JOBS Act provides that an “emerging growth company” can take advantage of the
extended transition period provided in Section 7(a)(2)(B) of the Securities Act for complying with new or revised accounting standards. In other words, an
“emerging growth company” can delay the adoption of certain accounting standards until those standards would otherwise apply to private companies.
We have chosen to take advantage of the extended transition periods available to emerging growth companies under the JOBS Act for complying with new
or revised accounting standards until those standards would otherwise apply to private companies provided under the JOBS Act. As a result, our financial
statements may not be comparable to those of companies that comply with public company effective dates for complying with new or revised accounting
standards.
-50-
Subject to certain conditions set forth in the JOBS Act, as an “emerging growth company,” we intend to rely on certain of these exemptions, including,
without limitation, (i) providing an auditor’s attestation report on our system of internal controls over financial reporting pursuant to Section 404(b) of the
Sarbanes-Oxley Act and (ii) complying with any requirement that may be adopted by the Public Company Accounting Oversight Board regarding
mandatory audit firm rotation or a supplement to the auditor’s report providing additional information about the audit and the financial statements, known
as the auditor discussion and analysis. We will remain an “emerging growth company” until the earliest of (i) the last day of the fiscal year in which we
have total annual gross revenues of $1.07 billion or more; (ii) the last day of our fiscal year following the fifth anniversary of the date of our initial public
offering; (iii) the date on which we have issued more than $1 billion in nonconvertible debt during the previous three years; or (iv) the date on which we are
deemed to be a large accelerated filer under the rules of the SEC.
PRINCIPAL COMMITMENTS
Appointment of CEO
Effective as of January 6, 2021, the Board of Directors appointed Bret Scholtes as President and Chief Executive Officer and as a director of the Company.
The Company and Mr. Scholtes entered into an employment pursuant to which Mr. Scholtes’ annual base salary is $400,000. The Employment Agreement
provides that Mr. Scholtes shall have an annual target cash bonus opportunity of no less than $400,000 (the “Bonus”) based on the achievement of
Company and individual performance objectives to be determined by the Board of Directors.
If Mr. Scholtes’ employment is terminated by the Company without cause (as defined in the Employment Agreement), if the Term expires after a notice of
non-renewal is delivered by the Company or if Mr. Scholtes’ employment is terminated following a change of control (as defined in the Incentive Plan),
Mr. Scholtes will be entitled to (a) twelve months’ base salary, (b) the prorated portion of the Bonus for the year in which the termination occurs, based on
actual performance and (c) base salary and benefits accrued through the date of termination.
Office lease
In July, 2021 the Company entered into a month-to-month lease for its primary corporate office space located in Houston, Texas, with lease payments of
approximately $1,700 per month.
-51-
Trends, Events and Uncertainties
Other than as discussed above, we are not currently aware of any trends, events or uncertainties that are likely to have a material effect on our
financial condition in the near term, although it is possible that new trends or events may develop in the future that could have a material effect on our
financial condition.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
As a smaller reporting company, we are not required to provide the information required by this item.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The information required by this item may be found beginning on page F-1 of this Annual Report on From 10-K.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
ITEM 9A. CONTROLS AND PROCEDURES
(a) Disclosure Controls and Procedures. Under the supervision and with the participation of our senior management, consisting of our Chief Executive
Officer and Chief Accounting Officer, we conducted an evaluation of the effectiveness of the design and operation of our disclosure controls and
procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), as of the end of the
period covered by this report (the “Evaluation Date”). Based on that evaluation, the Company’s management concluded that as of December 31, 2021, our
disclosure controls and procedures were effective to ensure that information required to be disclosed by us in the reports that we file under the Exchange
Act is recorded, processed, summarized and reported within the time periods specified in SEC rules and forms. Our disclosure controls and procedures
include, without limitation, controls and procedures designed to ensure that information required to be disclosed by us in our Exchange Act reports is
accumulated and communicated to our management, including our chief executive officer and directors, as appropriate to allow timely decisions regarding
required disclosure.
(b) Management’s Annual Report on Internal Control Over Financial Reporting. The Company’s management is responsible for establishing and
maintaining an adequate system of internal control over financial reporting (as defined in Exchange Act Rule 13a-15(f)). Our internal control over financial
reporting is a process, under the supervision of our Chief Executive Officer and Chief Accounting Officer, designed to provide reasonable assurance
regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted
accounting principles in the United States. These internal controls over financial reporting processes include policies and procedures that:
a. Pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of the assets of the Company;
b. Provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally
accepted accounting principles, and that receipts and expenditures of the Company are being made only in accordance with authorizations of management
and directors of the Company; and
c. Provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the Company’s assets that could
have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Therefore, even those systems
determined to be effective can provide only reasonable assurance of achieving their control objectives.
-52-
In evaluating the effectiveness of our internal control over financial reporting, our management used the criteria set forth by the Committee of Sponsoring
Organizations of the Treadway Commission (COSO) in Internal Control - Integrated Framework 2013. Based on this evaluation, our Chief Executive
Officer and our Chief Accounting Officer concluded that our internal controls over financial reporting were effective as of December 31, 2021.
This annual report does not include an attestation report of our registered public accounting firm regarding internal control over financial reporting.
Management’s report was not subject to attestation by our registered public accounting firm pursuant to the rules of the Securities and Exchange
Commission that permit the Company to provide only management’s report in this annual report.
(c) Changes in Internal Control over Financial Reporting. There were no changes in our internal control over financial reporting identified in connection
with the evaluation required by paragraph (d) of Rule 13a-15 or Rule 15d-15 under the Exchange Act that occurred during or subsequent to the Company’s
last fiscal quarter of the period covered by this report that have materially affected, or are reasonably likely to materially affect, our internal control over
financial reporting.
ITEM 9B. OTHER INFORMATION
Not applicable.
ITEM 9C. DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS
Not applicable.
-53-
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
PART III
The information required by this item is incorporated by reference to our Proxy Statement for the 2022 Annual Meeting of Stockholders to be filed with the
Securities and Exchange Commission within 120 days of the fiscal year ended December 31, 2021.
ITEM 11. EXECUTIVE COMPENSATION
The information required by this item is incorporated by reference to our Proxy Statement for the 2022 Annual Meeting of Stockholders to be filed with the
Securities and Exchange Commission within 120 days of the fiscal year ended December 31, 2021.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER
MATTERS
The information required by this item is incorporated by reference to our Proxy Statement for the 2022 Annual Meeting of Stockholders to be filed with the
Securities and Exchange Commission within 120 days of the fiscal year ended December 31, 2021.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS AND DIRECTOR INDEPENDENCE
The information required by this item is incorporated by reference to our Proxy Statement for the 2022 Annual Meeting of Stockholders to be filed with the
Securities and Exchange Commission within 120 days of the fiscal year ended December 31, 2021.
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
The information required by this item is incorporated by reference to our Proxy Statement for our 2022 Annual Meeting of Stockholders to be filed with the
Securities and Exchange Commission within 120 days of the fiscal year ended December 31, 2021.
-54-
ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a)
The following documents are filed as part of this report:
(1)
Financial Statements
PART IV
Reference is made to the Index to Financial Statements on page F-1, where these documents are listed.
(2)
Financial Statement Schedules
The financial statement schedules have been omitted because the required information is not applicable, or not present in amounts sufficient to require
submission of the schedules, or because the information is included in the financial statements or notes thereto.
(3)
Exhibits
(b)
Exhibits
A list of exhibits required to be filed as part of this Annual Report on Form 10-K is set forth in the Index to Exhibits, which is presented elsewhere in this
document, and is incorporated herein by reference.
ITEM 16. FORM 10-K SUMMARY
None.
-55-
Guardion Health Sciences, Inc.
Consolidated Financial Statements
Index
Report of Independent Registered Public Accounting Firm (PCAOB ID: 572)
Consolidated Financial Statements
Consolidated Balance Sheets – As of December 31, 2021 and 2020
Consolidated Statements of Operations – For the Years Ended December 31, 2021 and 2020
Consolidated Statements of Stockholders’ Equity – For the Years Ended December 31, 2021 and 2020
Consolidated Statements of Cash Flows – For the Years Ended December 31, 2021 and 2020
Notes to Consolidated Financial Statements
F-1
F-2
F-3
F-4
F-5
F-6
F-7
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Stockholders and Board of Directors of Guardion Health Sciences, Inc.
Houston, Texas
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of Guardion Health Sciences, Inc. (the “Company”) as of December 31, 2021 and 2020, the
related consolidated statements of operations, stockholders’ equity, and cash flows for the years then ended, and the related notes (collectively referred to as
the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position
of the Company as of December 31, 2021 and 2020, 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.
Basis for Opinion
These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s
consolidated financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board
(United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the
applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. The Company is not
required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are required to obtain an
understanding of internal control over financial reporting 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.
Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or
fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and
disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management,
as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
We have served as the Company’s auditor since 2015.
/s/Weinberg & Company, P.A.
Los Angeles, California
March 31, 2022
F-2
Guardion Health Sciences, Inc.
Consolidated Balance Sheets
$
$
$
December 31,
2021
2020
4,093,927 $
4,995,623
1,411,567
367,691
1,200,376
8,518,732
-
11,248
384,972
179,931
12,069,184
9,094,883
111,378
11,255,833
24,257
-
285,676
50,000
418,590
11,751
23,460,652 $
9,860,900
241,347 $
895,477
22,221
-
-
608,313
127,637
162,845
148,958
25,978
1,159,045
1,073,731
3,807
271,903
1,162,852
1,345,634
Assets
Current assets
Cash
Short-term investments
Accounts receivable, net
Inventories, net
Prepaid expenses and other assets
Total current assets
Property and equipment, net
Intangible assets, net
Operating lease right-of-use asset, net
Deposits
Total assets
Liabilities and Stockholders’ Equity
Current liabilities
Accounts payable
Accrued expenses
Operating lease liability - current
Payable to former officer
Warrant liability
Total current liabilities
Operating lease liability – long-term
Total liabilities
Commitments and contingencies
Stockholders’ Equity
Preferred stock, $0.001 par value; 10,000,000 shares authorized; no shares issued and outstanding at
December 31, 2021 and December 31, 2020
Common stock, $0.001 par value; 250,000,000 shares authorized; 24,426,993 and 15,170,628 shares
issued and outstanding at December 31, 2021 and December 31, 2020
Additional paid-in capital
Accumulated deficit
Total stockholders’ equity
-
-
24,427
101,075,445
(78,802,072)
15,171
62,583,423
(54,083,328)
22,297,800
8,515,266
Total liabilities and stockholders’ equity
$
23,460,652 $
9,860,900
See accompanying notes to consolidated financial statements.
F-3
Guardion Health Sciences, Inc.
Consolidated Statements of Operations
Revenue
Clinical nutrition
Diagnostics equipment
Other
Total revenue
Cost of goods sold
Clinical nutrition (includes inventory write-down of $51,489 and $760,488 during the years ended
December 31, 2021 and 2020, respectively)
Diagnostics equipment (includes inventory write-downs of $127,733 and $211,231 during the years
ended December 31, 2021 and 2020, respectively)
Other
Total cost of goods sold
Gross profit (loss)
Operating expenses
Research and development
Sales and marketing
General and administrative
Transaction costs related to acquisition of Activ Nutritional, LLC
Costs related to resignation of former officer (including the reversal of previously recognized stock
compensation expense of $965,295 during the year ended December 31, 2020)
Goodwill impairment
Loss on lease termination, net
Loss on disposal of property and equipment
Impairment of equipment held for sale
Total operating expenses
Loss from operations
Other income (expense):
Interest income
Interest expense
Change in fair value of warrant liability
Total other income (expense)
Net loss
Net loss per common share – basic and diluted
Weighted average common shares outstanding – basic and diluted
See accompanying notes to consolidated financial statements.
F-4
Years Ended December 31,
2020
2021
$
6,952,359 $
280,758
7,233,118
1,609,482
275,862
4,500
1,889,844
3,838,990
1,599,510
283,694
-
4,122,684
344,647
2,478
1,946,635
3,110,434
(56,791)
64,358
2,324,569
11,204,885
2,103,680
-
11,893,134
106,477
160,137
-
27,857,240
160,978
1,450,205
7,450,245
-
(615,936)
-
-
18,500
30,948
8,494,940
(24,746,806)
(8,551,731)
1,797
-
-
1,797
-
(7,271)
(12,655)
(19,926)
(24,745,009)
(8,571,657)
$
(1.04) $
23,688,623
(0.60)
14,256,856
Guardion Health Sciences, Inc.
Consolidated Statements of Stockholders’ Equity
Balance at December 31, 2019
Fair value of vested stock options – former officer and
director
Fair value of vested stock options
Common stock issued for services
Common stock issued upon exercise of warrants
Net loss
Balance at December 31, 2020
Cumulative effect adjustment from the impact of
adoption of Accounting Standards Update (ASU)
2020-06 related to warrants (See Notes 2 and 9)
Common stock issued for cash, net of offering costs
Common stock issued upon exercise of warrants
Fair value of vested stock options
Fair value of vested restricted stock
Net loss
Balance at December 31, 2021
Common Stock
Additional
Paid-In
Accumulated
Total
Stockholders’
Shares
12,497,094
Amount
$
12,497
$
Capital
57,531,014 $ (45,511,671) $
Deficit
Equity
12,031,840
-
-
16,667
2,656,867
-
15,170,628
-
7,608,674
1,647,691
-
-
-
24,426,993
$
$
-
-
17
2,657
-
15,171
-
7,608
1,648
-
-
-
24,427
(940,936)
494,677
49,433
5,449,235
-
-
-
-
-
(8,571,657)
$
62,583,423 $ (54,083,328) $
-
33,654,989
3,566,767
600,887
669,379
-
26,265
-
-
-
-
(24,745,009)
$ 101,075,445 $ (78,802,072) $
(940,936)
494,677
49,450
5,451,892
(8,571,657)
8,515,266
26,265
33,662,597
3,568,415
600,887
669,379
(24,745,009)
22,297,800
See accompanying notes to consolidated financial statements.
F-5
Guardion Health Sciences, Inc.
Consolidated Statements of Cash Flows
Operating Activities
Net loss
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization
Goodwill impairment
Loss on lease termination, net
Impairment loss on equipment
Loss on disposal of property and equipment
Loss on sale of equipment
Allowance for accounts receivable
Inventory write-down
Amortization of operating lease right of use asset
Fair value of vested stock options
Fair value of common stock issued for services
Reversal of previously recognized stock compensation expense–former officer
Change in fair value of derivative liability
Changes in operating assets and liabilities:
(Increase) / decrease:
Accounts receivable
Inventories
Prepaid expenses and other
Increase / (decrease):
Accounts payable
Accrued expenses
Operating lease liability
Payable to former officer
Net cash used in operating activities
Investing Activities
Purchase of property and equipment
Purchase of U.S. Treasury Bills
Sale of U.S. Treasury Bills
Cash paid for acquisition, net of cash acquired
Net cash used in investing activities
Financing Activities
Proceeds from sale of common stock, net
Proceeds from exercise of warrants
Net cash provided by financing activities
Cash:
Net increase (decrease)
Balance at beginning of period
Balance at end of period
Supplemental disclosure of cash flow information:
Cash paid for -
Interest
Income taxes
Non-cash financing activities:
Adjust warrant liability for adoption of ASU 202-06
Reclassification of prepaid costs to inventory
Reclassification of property and equipment to inventory
Years Ended December 31,
2020
2021
$
(24,745,009) $
(8,571,657)
782,920
11,893,134
106,477
-
160,137
-
20,695
179,222
124,628
600,887
669,379
-
-
378,681
451,122
(971,420)
(680,697)
768,127
(233,741)
(148,958)
65,476
-
-
30,948
-
18,500
971,719
154,124
544,127
-
(940,936)
12,655
67,089
(728,801)
(125,171)
479,181
11,426
(151,567)
148,958
(10,644,416)
(8,013,929)
(74,592)
(70,952,562)
65,956,939
(25,941,186)
(31,011,401)
(40,733)
-
-
6,000
(34,733)
33,662,597
3,568,415
-
5,451,892
37,231,012
5,451,892
(4,424,805)
8,518,732
4,093,927 $
(2,596,770)
11,115,502
8,518,732
$
$
26,265
$
$
7,271
-
-
308,178
8,771
$
$
$
$
$
$
See accompanying notes to consolidated financial statements.
F-6
Guardion Health Sciences, Inc.
Notes to Consolidated Financial Statements
Years Ended December 31, 2021 and 2020
1. Organization and Business and Business Operations
Business
Guardion Health Sciences, Inc. (the “Company”) is a clinical nutrition and diagnostics company that offers a portfolio of science-based, clinically
supported products and devices designed to support healthcare professionals and providers, and their patients and consumers. In June 2021, the Company
acquired Activ Nutritional, LLC (“Activ”), the owner and distributor of the Viactiv® line of supplements for bone health and other applications (see Note
3). The Company was formed in 2009 as a California limited liability company under the name P4L Health Sciences, LLC, and in 2015 converted from a
California limited liability company to a Delaware corporation, changing its name from Guardion Health Sciences, LLC to Guardion Health Sciences, Inc.
Liquidity
The accompanying consolidated financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the
settlement of liabilities and commitments in the normal course of business. For the year ended December 31, 2021, the Company incurred a net loss of
$24,745,009 and used cash in operating activities of $10,644,416. As of December 31, 2021, the Company had cash and short-term investments on hand of
approximately $9,089,550 and working capital of $10,910,139. Subsequent to December 31, 2022, the Company completed an offering of shares of its
common stock and warrants in February 2022 (See Note 15) and the net proceeds to the Company, after deducting offering costs, were approximately $10
million. In the event that the Company fails to deliver shares by the required delivery date upon exercise of the warrants, the Company may be subject to
cash penalties in an amount up to $20 per trading day for each $1,000 of warrant shares until such shares are delivered. In addition, if the warrant holder
purchases shares in the market following the Company’s failure to deliver shares upon exercise of the warrants, the Company will be required to cover the
cost of any buy-ins and, at the option of the warrant holder, either reinstate the portion of the warrant for the shares that were not delivered or deliver the
number of shares that should have been issued.
Notwithstanding the net loss for 2021, management believes that its cash and short-term investments as of December 31, 2021, plus the net proceeds of the
February 2022 financing are sufficient to fund operations for at least one year from the date the Company’s 2021 financial statements are issued.
The amount and timing of future cash requirements will depend, in part, on the Company’s ability to ultimately achieve operating profitability. The
Company expects to continue to incur net losses and negative operating cash flows in the near-term and will continue to incur significant expenses for the
development, commercialization and distribution of its clinical nutrition products (including the Viactiv® product line), the development and
commercialization of its diagnostics equipment, and the successful development and commercialization of any new products or product lines. The
Company may also utilize cash to fund additional acquisitions.
The Company may seek to raise additional debt and/or equity capital to fund future operations, but there can be no assurances that the Company will be
able to secure such additional financing in the amounts necessary to fully fund its operating requirements on acceptable terms or at all. Over time, if the
Company is unable to access sufficient capital resources on a timely basis, the Company may be forced to reduce or discontinue its technology and product
development programs and curtail or cease operations.
COVID-19
The Company is subject to risks and uncertainties of the COVID-19 pandemic that could adversely impact our business. The Company has implemented
additional health and safety precautions and protocols in response to the pandemic and government guidelines, including curtailing employee travel and
primarily working remotely. During 2020 and through the end of 2021, sales of certain products remained flat as compared to prior comparable periods, as
many professional offices were closed for long periods, or were operating with limited capacity, due to COVID-19 related orders and protocols.
Management is actively focusing on supply chain matters in light of industry-wide supply chain constraints. Through December 31, 2021, the Company
has not experienced negative impacts to its supply chain, however, the Company cannot make any assurances in future periods.
F-7
2. Summary of Significant Accounting Policies
Basis of Presentation
The consolidated financial statements and accompanying notes have been prepared in accordance with accounting principles generally accepted in the
United States of America (“U.S. GAAP”).
The Company previously had two reportable segments, a Clinical Nutrition Segment and a Medical Devices Segment. During the fourth quarter of 2021,
the Company announced it would be winding down the Medical Devices Segment, which accounted for approximately 4% of revenue in 2021. As a result,
the Company no longer has any material revenues or expenses in the Medical Devices Segment, and accordingly, as of December 31, 2021, the Company is
the sole reporting unit. At December 31, 2021, as there is only one reporting unit, all of the Company’s prior period segment information has been
eliminated.
Reverse Stock Split
On March 1, 2021, the Company filed a Certificate of Amendment to its Certificate of Incorporation, as amended, with the Secretary of State of the State of
Delaware to effectuate a one-for-six (1:6) reverse stock split of its common stock without any change to its par value. Accordingly, all common shares,
stock options, stock warrants and per share amounts in these consolidated financial statements have been adjusted retroactively to reflect the reverse stock
split as if the split occurred at the beginning of the earliest period presented in this Annual Report.
Principles of Consolidation
The consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries, Activ Nutrititionals, Inc., VectorVision
Ocular Health, Inc., NutriGuard Formulations, Inc., and Transcranial Doppler Solutions, Inc. All intercompany balances and transactions have been
eliminated in consolidation.
Use of Estimates
The preparation of our financial statements in conformity with accounting principles generally accepted in the United States of America (“GAAP”) requires
management to make certain estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses, and the disclosure of
contingent assets and liabilities. Actual results could differ from those estimates. On an ongoing basis, management reviews its estimates and if deemed
appropriate, those estimates are adjusted. Significant estimates include those related to assumptions used in valuing inventories at net realizable value,
assumptions used in valuing assets acquired in business acquisitions, impairment testing of goodwill and other long-term assets, assumptions used in
valuing stock-based compensation, the valuation allowance for deferred tax assets, accruals for potential liabilities, and assumptions used in the
determination of the Company’s liquidity. Actual results could differ from those estimates.
Revenue Recognition
The Company recognizes revenue in accordance with Financial Accounting Standard Board’s (“FASB”) Accounting Standards Codification (“ASC”) Topic
606, Revenue from Contracts with Customers. To determine revenue recognition under ASC 606, an entity performs the following five-steps (i) identifies
the contract(s) with a customer; (ii) identifies the performance obligations in the contract; (iii) determines the transaction price; (iv) allocates the transaction
price to the performance obligations in the contract; and (v) recognizes revenue when (or as) the entity satisfies a performance obligation. The Company
only applies the five-steps to contracts when it is probable that the entity will collect the consideration it is entitled to in exchange for the goods or services
it transfers to the customer.
Revenue and costs of sales are recognized when control of the products transfers to our customer, which generally occurs upon delivery to the customer.
The Company’s performance obligations are satisfied at that time. The Company does not have any significant contracts with customers requiring
performance beyond delivery, and contracts with customers contain no incentives or discounts that could cause revenue to be allocated or adjusted over
time. Shipping and handling activities are performed before the customer obtains control of the goods and therefore represent a fulfillment activity rather
than a promised service to the customer.
F-8
All products sold by the Company are distinct individual products and are offered for sale as finished goods only, and there are no performance obligations
required post-shipment for customers to derive the expected value from them. Contracts with customers contain no incentives or discounts that could cause
revenue to be allocated or adjusted over time.
Shipping and handling activities are performed before the customer obtains control of the goods and therefore represent a fulfillment activity rather than a
promised service to the customer. Historically the Company has not experienced any significant payment delays from customers.
In certain circumstances, returns of products are allowed. A right of return does not represent a separate performance obligation, but because customers are
allowed to return products, the consideration to which the Company expects to be entitled is variable. Upon evaluation of historical product returns, the
Company determined it is probable that such returns will not cause a significant reversal of revenue in the future. Due to the insignificant amount of
historical returns, as well as the standalone nature of the Company’s products and assessment of performance obligations and transaction pricing for the
Company’s sales contracts, the Company does not currently maintain a contract asset or liability balance at this time. The Company assesses its contracts
and the reasonableness of its conclusions on a quarterly basis.
Revenue by product:
Clinical Nutrition
Diagnostics Equipment
Other
Years Ended December 31,
2020
2021
$
$
6,952,359 $
280,758
-
7,233,118 $
1,609,482
275,862
4,500
1,889,844
The Company’s revenues earned during the year ended December 31, 2021, are derived primarily from retail customers in North America. During the year
ended December 31, 2020, our revenue was derived from retail customers in North America, plus a large sale to a single Malaysian distributor in the
amount of approximately $890,000.
Revenues by geographical areas:
North America
Malaysia
Other Asia
Europe and Other
Cost of Goods Sold
Years Ended December 31,
2020
2021
$
$
7,052,645 $
-
158,738
21,735
7,233,118 $
891,768
889,508
58,688
49,880
1,889,844
Cost of goods sold is comprised of the costs for third-party contract manufacturing, packaging, manufacturing fees, and in-bound freight charges.
Third-party outsourcing
On June 1, 2021, the Company completed the acquisition of Activ Nutritional LLC (see Note 3). Activ owns the Viactiv® line of supplement chews for
bone health, immune health and other applications. As part of the acquisition, the Company assumed third-party agreements for the manufacture and
product fulfillment of the Viactiv® products.
F-9
Subsequent to the acquisition of Activ, the Company derives substantially all of its revenue from the sale of products using a third-party fulfillment center
to provide order processing and sales fulfillment, customer invoicing and collections, and product warehousing. Fees for these services are provided under
a services and warehousing agreement based on 2% of the Company’s monthly gross invoiced sales, as defined. The services and warehousing agreement
automatically renews every six months unless either party provides notice of its intent not to renew at least six months in advance. Substantially all of our
products are shipped through the third-party fulfillment center to the customer and the customer takes title to product and assumes risk and ownership of
the product when it is delivered. Shipping charges to customers are included in revenues.
In addition, the Company uses the third-party fulfillment center to provide sales and inventory management, and marketing and promotional services. Fees
for these services are provided under a sales representation agreement based on 4% of the Company’s monthly net invoiced sales, as defined. The sales
representation services and warehousing agreement automatically renews every three months unless either party provides notice of its intent not to renew at
least three months in advance.
Subsequent to the acquisition of Activ, the Company has outsourced the production of substantially all of its products with a third party that manufactures
and packages the finished products under a product supply agreement. The Company’s purchase price for each product includes costs for raw materials,
production, and amounts for fees and profit, as defined, for the manufacturer.
For the year ended December 31, 2021, costs incurred related to third-party outsourcing were:
Services and warehousing agreement
Sales representation agreement
Product supply agreement
$
171,817
301,031
2,925,781
$ 3,398,629
At December 31, 2021, the Company recorded a receivable of $420,497 from its third-party fulfillment center for amounts collected on behalf of the
Company. The balance is included in prepaid expenses and other assets and was received in January 2022.
Shipping Costs
Shipping costs associated with product distribution after manufacture are included as part of cost of goods sold. Shipping and handling expense totaled
$338,829 and $24,029 for the years ended December 31, 2021 and 2020, respectively.
Business Combinations
The Company accounts for its business combinations using the acquisition method of accounting where the purchase consideration is allocated to the
tangible and intangible assets acquired, and liabilities assumed, based on their respective fair values as of the acquisition date. The excess of the fair value
of the purchase consideration over the estimated fair values of the net assets acquired is recorded as goodwill. When determining the fair values of assets
acquired and liabilities assumed, management makes significant estimates and assumptions, especially with respect to intangible assets. Critical estimates
in valuing intangible assets include, but are not limited to, expected future cash flows, which includes consideration of future growth and margins, future
changes in technology, brand awareness and discount rates. Fair value estimates are based on the assumptions that management believes a market
participant would use in pricing the asset or liability.
Cash
Cash consists of cash and demand deposits with banks. The Company holds no cash equivalents as of December 31, 2021 and 2020, respectively.
Investments
Short-term investments held by the Company as of December 31, 2021, consist of a U.S. Treasury Bill, which is classified as held-to-maturity. The
Company’s U.S. Treasury Bill is scheduled to mature approximately 30 days from the date of purchase. Unrealized gains and losses were not material. As
of December 31, 2021, the carrying value of the Company’s U.S. Treasury Bill approximates its fair value due to its short-term maturity.
F-10
Accounts Receivable
Accounts receivable are recorded at the invoiced amounts. Management evaluates the collectability of its trade accounts receivable and determines an
allowance for doubtful accounts based on historical write-offs, known or expected trends, and the identification of specific balances deemed uncollectible
based on a customer’s financial condition, credit history and the current economic conditions.
At December 31, 2021, the allowance for doubtful accounts was $20,695. At December 31, 2020, there was no allowance for doubtful accounts.
Inventories
Inventories are stated at the lower of cost or net realizable value, with cost determined on a first-in, first-out (“FIFO”) basis. The Company records
adjustments to its inventory for estimated obsolescence or diminution in net realizable value equal to the difference between the cost of the inventory and
the estimated net realizable value. When evidence exists that the net realizable value of inventory is lower than its cost, the difference is recognized as a
loss in the period in which it occurs. Once inventory has been written down, it creates a new cost basis for inventory that may not subsequently written up.
For the years ended December 31, 2021 and 2020, the Company wrote-down inventories of $179,222 and $971,719, respectively, which was recorded in
cost of sales (see Note 4).
Property and Equipment
Property and equipment are recorded at cost less accumulated depreciation. Additions, improvements, and major renewals or replacements that
substantially extend the useful life of an asset are capitalized. Repairs and maintenance expenditures are expensed as incurred. Depreciation is computed
using the straight-line method over the estimated useful lives of the related assets, which range from three to seven years. Leasehold improvements are
amortized on a straight-line basis over the shorter of their estimated useful lives or the remaining lease term.
Management assesses the carrying value of property and equipment whenever events or changes in circumstances indicate that the carrying value may not
be recoverable. If there is indication of impairment, management prepares an estimate of future cash flows expected to result from the use of the asset and
its eventual disposition. If these cash flows are less than the carrying amount of the asset, an impairment loss is recognized to write down the asset to its
estimated fair value at that time. At December 31, 2021 and 2020, management determined there were no impairments of the Company’s property and
equipment.
Intangible Assets
Amortizable finite-lived identifiable intangible assets consist of a trade name and customer relationships acquired in the acquisition of Activ, effective June
1, 2021 (See Note 3), and are stated at cost less accumulated amortization. The trade name and customer relationships are being amortized over a period of
10 years. The Company follows ASC 360 in accounting for finite-lived intangible assets, which requires impairment losses to be recorded when indicators
of impairment are present and the undiscounted cash flows estimated to be generated by the assets are less than the assets’ carrying amounts.
At December 31, 2021 and December 31, 2020, the Company had a trademark for $50,000 classified as an indefinite-lived intangible asset.
Goodwill
The Company tests goodwill for impairment annually on December 31, or more frequently if a triggering event occurs and it updates its test with
information that becomes available through the end of the period reported. Goodwill impairment exists when the fair value of goodwill is less than its
carrying value. The Company is its sole reporting unit. During the fourth quarter of 2021, the Company experienced a sustained decrease in its share price,
and as of December 31, 2021, the Company’s market capitalization was below the carrying value of the Company’s net assets. Management concluded that
this was an impairment triggering event, and concluded that there was goodwill impairment of $11,893,134 at December 31, 2021(See Note 6). No
impairment of goodwill was recorded for the year ended December 31, 2020. Following the impairment, the Company had no remaining goodwill as of
December 31, 2021.
F-11
Leases
The Company determines whether a contract is, or contains, a lease at inception. Right-of-use assets represent the Company’s right to use an underlying
asset during the lease term, and lease liabilities represent the Company’s obligation to make lease payments arising from the lease. Right-of-use assets and
lease liabilities are recognized at lease commencement based upon the estimated present value of unpaid lease payments over the lease term. The Company
uses its incremental borrowing rate based on the information available at lease commencement in determining the present value of unpaid lease payments.
Concentrations
Revenue. During the year ended December 31, 2021, the Company had one customer that accounted for 49% of total revenue. During the year ended
December 31, 2020, the Company had one customer that accounted for 49% of the Company’s total revenue. No other customer accounted for more than
10% of revenue, during the years ended December 31, 2021 or 2020.
Accounts receivable. As of December 31, 2021, the Company had accounts receivable from one customer which comprised approximately 81% of its gross
accounts receivable. As of December 31, 2020, the Company had accounts receivable from two customers which comprised approximately 50% and 48%,
respectively of accounts receivable. No other customer accounted for more than 10% of accounts receivable as of December 31, 2021 or 2020.
Purchases from vendors. During the year ended December 31, 2021, the Company utilized one manufacturer for most its production and packaging of its
clinical nutrition products. Total purchases from this manufacturer accounted for approximately 70% of all purchases. During the year ended December 31,
2020, the Company’s largest vendor accounted for approximately 38% of all purchases. No other vendor accounted for more than 10% of purchases during
the years ended December 31, 2021 or 2020.
Accounts payable. As of December 31, 2021, one vendor accounted for 46% of total accounts payable. As of December 31, 2020, the Company’s largest
two vendors accounted for 18% and 13% of the total accounts payable, respectively. No other vendor accounted for more than 10% of accounts payable as
of December 31, 2021 or 2020.
Cash balances. Cash balances are maintained at large, well-established financial institutions. At times, cash balances may exceed federally insured limits.
Insurance coverage limits are $250,000 per depositor at each financial institution. The Company believes that no significant concentration of credit risk
exists with respect to its cash balances because of its assessment of the creditworthiness and financial viability of the financial institutions that hold such
cash balances.
Advertising Costs
Advertising costs are expensed as incurred and are included in sales and marketing expense. Advertising costs aggregated approximately $161,833 and
$44,429 for the years ended December 31, 2021 and 2020, respectively.
Research and Development Costs
Research and development costs consist primarily of fees paid to consultants and outside service providers, and other expenses relating to the acquisition,
design, development and testing of the Company’s Clinical Nutrition products. Research and development costs totaled $64,358 and $160,978 for the years
ended December 31, 2021 and 2020, respectively.
Patent Costs
The Company is the owner of four issued domestic patents, one granted patent in Canada, and one pending patent application in Hong Kong. Due to the
significant uncertainty associated with the successful development of one or more commercially viable products based on the Company’s research efforts
and any related patent applications, patent costs, including patent-related legal fees, filing fees and internally generated costs, are expensed as incurred.
During the years ended December 31, 2021, and 2020, patent costs were approximately $67,681 and $124,806, respectively, and are included in general
and administrative costs in the statements of operations.
Stock-Based Compensation
The Company periodically issues stock options and restricted stock awards to employees and non-employees in non-capital raising transactions for services
and for financing costs. Stock option grants, which are generally time or performance vested, are measured at the grant date fair value and depending on the
conditions associated with the vesting of the award, compensation cost is recognized on a straight-line or graded basis over the vesting period. Recognition
of compensation expense for non-employees is in the same period and manner as if the Company had paid cash for the services.
F-12
The fair value of stock options granted is estimated using the Black-Scholes option-pricing model, which uses certain assumptions related to risk-free
interest rates, expected volatility, expected life, and future dividends. The assumptions used in the Black-Scholes option pricing model could materially
affect compensation expense recorded in future periods.
Income Taxes
The Company uses an asset and liability approach for accounting and reporting for income taxes that allows recognition and measurement of deferred tax
assets based upon the likelihood of realization of tax benefits in future years. Under the asset and liability approach, deferred taxes are provided for the net
tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income
tax purposes. A valuation allowance is provided for deferred tax assets if it is more likely than not these items will either expire before the Company is able
to realize their benefits, or that future deductibility is uncertain. The Company’s policy is to recognize interest and/or penalties related to income tax
matters in income tax expense.
Loss per Common Share
Basic loss per share is computed by dividing net loss by the weighted-average common shares outstanding during a period. Diluted earnings per share is
computed based on the weighted-average common shares outstanding plus the effect of dilutive potential common shares outstanding during the period
calculated using the treasury stock method. Dilutive potential common shares include shares from unexercised warrants and options. Potential common
share equivalents have been excluded where their inclusion would be anti-dilutive. The Company’s basic and diluted net loss per share is the same for all
periods presented because all shares issuable upon exercise of warrants and options are anti-dilutive.
The following potentially dilutive shares were excluded from the shares used to calculate diluted earnings per share:
Warrants
Options
Unvested restricted common stock
Fair Value of Financial Instruments
December 31,
2021
485,067
541,910
202,671
1,229,648
2020
2,132,758
778,194
30,000
2,940,952
Accounting standards require certain assets and liabilities be reported at fair value in the financial statements and provide a framework for establishing that
fair value. Fair value is defined as the price that would be received upon sale of an asset or paid to transfer a liability in an orderly transaction between
market participants at the measurement date. When determining fair value, the Company considers the principal or most advantageous market in which it
transacts and considers assumptions that market participants would use when pricing the asset or liability. The framework for determining fair value is
based on a hierarchy that prioritizes the inputs and valuation techniques used to measure fair value:
Level 1 – Quoted prices in active markets for an identical asset or liability that the Company has the ability to access as of the measurement date.
Level 2 – Inputs, other than quoted prices included within Level 1, which are directly observable for the asset or liability or indirectly observable through
corroboration with observable market data.
Level 3 – Unobservable inputs in which there is little or no market data for the asset or liability which requires the reporting entity to develop its own
assumptions.
F-13
The Company determines the level in the fair value hierarchy within which each fair value measurement falls in its entirety, based on the lowest level input
that is significant to the fair value measurement in its entirety. In determining the appropriate levels, the Company performs an analysis of the assets and
liabilities at each reporting period end.
The following table sets forth by level, within the fair value hierarchy, the Company’s assets and liabilities at fair value as of December 31, 2021 and 2020:
Level 1
Level 2
Level 3
Total
December 31, 2021
Assets
U.S. Treasury securities
Total assets
Liabilities
Total liabilities
Assets
Total assets
Liabilities
Warrant liability
Total liabilities
$
$
$
$
$
$
$
$
4,995,623
4,995,623
Level 1
-
-
-
-
-
-
$
$
$
$
$
$
$
$
- $
- $
- $
- $
- $
- $
- $
- $
December 31, 2020
Level 2
Level 3
Total
- $
- $
25,978 $
25,978 $
- $
- $
- $
- $
4,995,623
4,995,623
-
-
-
-
25,978
25,978
The Company believes the carrying amount of its financial instruments (consisting of cash, accounts receivable, and accounts payable and accrued
liabilities) approximates fair value due to the short-term nature of such instruments.
Recent Accounting Pronouncements
In September 2016, the Financial Accounting Standards Board (the “FASB”) issued Accounting Standards Update (“ASU”) 2016-13, Credit Losses -
Measurement of Credit Losses on Financial Instruments (“ASU 2016-13”). The standard significantly changes how entities will measure credit losses for
most financial assets, including accounts and notes receivables. The standard will replace today’s “incurred loss” approach with an “expected loss” model,
under which companies will recognize allowances based on expected rather than incurred losses. Entities will apply the standard’s provisions as a
cumulative-effect adjustment to retained earnings as of the beginning of the first reporting period in which the guidance is effective. As a smaller reporting
company, ASU 2016-13 will be effective for the Company beginning January 1, 2023, with early adoption permitted. The Company is currently assessing
the impact of adopting this standard on the Company’s financial statements and related disclosures.
In August 2020, the FASB issued ASU 2020-06, Debt—Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging—
Contracts in Entity’s Own Equity (Subtopic 815-40) (“ASU 2020-06”). ASU 2020-06 reduces the number of accounting models for convertible debt
instruments by eliminating the cash conversion and beneficial conversion models. As a result, a convertible debt instrument will be accounted for as a
single liability measured at its amortized cost as long as no other features require bifurcation and recognition as derivatives. For contracts in an entity’s own
equity, the type of contracts primarily affected by this update are freestanding and embedded features that are accounted for as derivatives under the current
guidance due to a failure to meet the settlement conditions of the derivative scope exception. This update simplifies the related settlement assessment by
removing the requirements to (i) consider whether the contract would be settled in registered shares, (ii) consider whether collateral is required to be
posted, and (iii) assess shareholder rights. ASU 2020-06 is effective January 1, 2024 for the Company and the provisions of this update can be adopted
using either the modified retrospective method or a fully retrospective method. Early adoption is permitted, but no earlier than January 1, 2021.
F-14
At December 31, 2020, the Company recorded a derivative liability of $25,978 related to 10,417 warrants issued in 2019 because the settlement provisions
of the warrants contained language that the shares underlying the warrants are required to be registered. Effective January 1, 2021, the Company early
adopted ASU 2020-06 using the modified retrospective approach. ASU 2020-06 removed the requirement to consider if the warrants would be settled in
registered shares, and accordingly, the adoption of ASU 2020-06 resulted in a decrease to accumulated deficit of $25,978 and a decrease in derivative
warrant liability of $25,978 on January 1, 2021.
In May 2021, the FASB issued ASU 2021-04, Earnings Per Share (Topic 260), Debt — Modifications and Extinguishments (Subtopic 470-50),
Compensation — Stock Compensation (Topic 718), and Derivatives and Hedging — Contracts in Entity’s Own Equity (Subtopic 815-40): Issuer’s
Accounting for Certain Modifications or Exchanges of Freestanding Equity-Classified Written Call Options (“ASU 2021-04”). ASU 2021-04 provides
guidance as to how an issuer should account for a modification of the terms or conditions or an exchange of a freestanding equity-classified written call
option (i.e., a warrant) that remains classified after modification or exchange as an exchange of the original instrument for a new instrument. An issuer
should measure the effect of a modification or exchange as the difference between the fair value of the modified or exchanged warrant and the fair value of
that warrant immediately before modification or exchange and then apply a recognition model that comprises four categories of transactions and the
corresponding accounting treatment for each category (equity issuance, debt origination, debt modification, and modifications unrelated to equity issuance
and debt origination or modification). ASU 2021-04 is effective for all entities for fiscal years beginning after December 15, 2021, including interim
periods within those fiscal years. An entity should apply the guidance provided in ASU 2021-04 prospectively to modifications or exchanges occurring on
or after the effective date. Early adoption is permitted for all entities, including adoption in an interim period. If an entity elects to early adopt ASU 2021-
04 in an interim period, the guidance should be applied as of the beginning of the fiscal year that includes that interim period. The adoption of ASU 2021-
04 is not expected to have any impact on the Company’s consolidated financial statement presentation or disclosures.
Other recent accounting pronouncements issued by the FASB, its Emerging Issues Task Force, the American Institute of Certified Public Accountants, and
the Securities and Exchange Commission did not or are not believed by management to have a material impact on the Company’s present or future
financial statements.
3. Acquisition of Activ Nutritional, LLC
On June 1, 2021, the Company completed the acquisition of Activ Nutritional LLC (“Activ”). The acquisition was made pursuant to an equity purchase
agreement dated May 18, 2021 between the Company, Adare Pharmaceuticals, Inc., (“Adare”), and Activ. The Company acquired all of the issued and
outstanding equity of Activ from Adare for $26,000,000 in cash, subject to certain adjustments as provided in the equity purchase agreement.
Activ owns the Viactiv® line of supplement chews for bone health, immune health and other applications which are currently marketed through many of
the nation’s largest retailers, including, among others, Walmart (retail and online), Target and Amazon. The Viactiv product lines are expected to become
the Company’s most prominent product lines for the foreseeable future.
The Company utilized the acquisition method of accounting for the acquisition in accordance with ASC 805, Business Combinations. The Company
allocated the purchase price to Activ’s tangible assets, identifiable intangible assets, and assumed liabilities at their estimated fair values as of the date of
acquisition. The fair value of the intangible assets was estimated using the income approach, pursuant to which after-tax cash flows are discounted to
present value based on projections and other available financial data. The cash flows were based on estimates used to value the acquisition, and the
discount rates applied were benchmarked with reference to the implied rate of return from the transaction model, as well as the weighted average cost of
capital. The valuation assumptions took into consideration the Company’s estimates of customer attrition and revenue growth projections. The excess of the
purchase price paid by the Company over the estimated fair value of identified tangible and intangible assets has been recorded as goodwill.
F-15
The following table summarizes the allocation of the fair value of the purchase consideration to the fair value of tangible assets, identifiable intangible
assets, and assumed liabilities of Activ on the date of acquisition:
Fair value of consideration:
Purchase price, as adjusted, paid in cash
Allocation of the consideration to the fair value of assets acquired and liabilities assumed:
Cash
Accounts receivable
Inventories
Prepaids
Accounts payable
Net tangible assets
Trade names and trademarks
Customer relationships
Net identifiable intangible assets
Goodwill
Fair value of net assets acquired
$
$
25,949,654
8,468
1,799,695
613,063
49,025
(313,731)
2,156,520
9,200,000
2,700,000
11,900,000
11,893,134
$
25,949,654
The goodwill is attributable to expected synergies resulting from integrating the Viactiv product lines into the Company’s sales channels. The Company
consolidated Activ’s operations with the Company’s operations commencing June 1, 2021, the closing date of the transaction. Activ’s operations are
included in the Company’s Clinical Nutrition segment. The amount of revenue and net loss of Activ included in the Company’s consolidated statements of
operations during the year ended December 31, 2021, was $6,473,000 and $868,000, respectively.
Acquisition-related transaction costs (e.g., legal, due diligence, valuation, investment banking and other professional fees) are not included as a component
of consideration transferred, but were expensed as incurred. During the year ended December 31, 2021, the Company incurred approximately $2,104,000
of acquisition-related costs, respectively, which are included as a line item in the Company’s consolidated statements of operations.
Pro Forma Information
The following unaudited pro forma consolidated statement of operations for the year ended December 31, 2021 and 2020 is presented as if the acquisition
of Activ had occurred on January 1, 2020, after giving effect to certain pro forma adjustments. The pro forma results of operations are presented for
informational purposes only and are not indicative of the results of operations that would have been achieved if the acquisition had actually been
consummated on January 1, 2020. These results are prepared in accordance with ASC 606.
Revenue
Net loss
Net loss per share – basic and diluted
4. Inventories
Inventories consisted of the following:
Raw materials
Finished goods
Inventory
The Company’s inventories are stated at the lower of cost or net realizable value on a FIFO basis.
F-16
Unaudited Pro Forma
December 31,
2021
12,765,911 $
(22,171,583) $
($0.94) $
2020
13,820,092
(10,757,277)
($0.75)
$
$
$
December 31,
2020
2020
$
$
53,320 $
314,371
367,691 $
218,307
166,665
384,972
For the years ended December 31, 2021 and 2020, the Company recorded inventory write-downs of $179,222 and $971,719, respectively, which are
included in cost of sales.
5. Property and Equipment, net
Property and equipment consisted of the following:
Leasehold improvements
Testing equipment
Furniture and fixtures
Computer equipment and software
Office equipment
Less accumulated depreciation and amortization
December 31,
2021
2020
4,898 $
-
129,696
111,469
1,642
247,705
(136,327)
111,378 $
103,255
348,124
197,349
68,460
9,835
727,023
(441,347)
285,676
$
$
Depreciation expense consisted of the following for the years ended December 31, 2021 and 2020, respectively:
Research and development expense
Sales and marketing expense
General and administrative expense
6. Goodwill and Intangible Assets, Net
Intangible asset, net consisted of the following:
Trade name
Customer relationships
Trademark
Less accumulated amortization
Years Ended December 31,
2020
2021
38,106 $
16,362
37,107
91,575 $
35,846
13,252
16,378
65,476
December 31,
2021
2020
9,200,000 $
2,700,000
50,000
11,950,000
(694,167)
11,255,833 $
-
-
50,000
50,000
-
50,000
$
$
$
$
For the year ended December 31, 2021, amortization expense was $694,167. The expected future amortization expense for amortizable finite-lived
intangible assets as of December 31, 2021 is as follows:
2022
2023
2024
2025
2026
Thereafter
Total future expected amortization expense
F-17
Total
1,190,000
1,190,000
1,190,000
1,190,000
1,190,000
5,255,833
11,205,833
$
$
Goodwill:
The changes in the carrying amount of goodwill are as follows:
Beginning balance:
Acquisition (see Note 3)
Impairment
Ending balance:
As of December 31,
2021
2020
$
- $
11,893,134
(11,893,134)
$
- $
-
-
-
-
In connection with its acquisition of Activ (see Note 3) the Company identified amortizable intangible assets consisting of trade names of $9,200,000 and
customer lists of $2,700,000. The trade name and customer relationship are being amortized over their expected useful lives of 10 years.
As a result of the significant decrease in the Company’s market capitalization during the fourth quarter of 2021, the Company evaluated the impact to
assess whether there was an impairment triggering event requiring it to perform a goodwill impairment test. In connection with the impairment triggering
event, the Company first evaluated the recoverability of its long-lived asset group containing trade name and customer relationships to determine whether
any assets were impaired. The Company compared the undiscounted cash flows of its long-lived asset group containing trade name and customer
relationships to the carrying value of the asset group. If the undiscounted cash flows were less than the assets carrying value, the asset would be impaired.
As of December 31, 2021, the Company determined undiscounted cash flows related to the trade names and customer lists were more than the carrying
value of the assets, and therefore these intangible assets were not impaired.
In connection with the impairment triggering event noted above, the Company next performed a goodwill impairment test as of December 31, 2021. As
part of this impairment test, the Company used the income approach and utilized a substantial portion of the undiscounted cash flows forecast used to
evaluate the long-lived asset group containing trade name and customer relationships above. However, the cash flow forecast was discounted to estimate
fair value of the Company as sole reporting unit for the step one goodwill impairment test. The discount rate selected was 16% based on management’s
consideration of the related risk associated with the forecast. Based on the result, the discounted cash flows were less than the net carrying value of the
Company’s assets, and goodwill was determined to be impaired. Accordingly, the full amount of the Company’s goodwill of $11,893,134 was written off as
impaired during the fourth quarter of 2021.
These estimates and judgments used above may not be within the control of the Company and accordingly it is reasonably possible that the judgments and
estimates could change in future periods.
7. Operating Leases
As of December 31, 2021, the Company leased a warehouse space in Ohio under an operating lease. The Company accounts for its lease under ASC 842,
Leases. The Company determines whether a contract is, or contains, a lease at inception, and all leases greater than 12 months result in recognition of a
right-of-use asset and an operating lease liability. Right-of-use assets represent the Company’s right to use an underlying asset during the lease term, and
operating lease liabilities represent the Company’s obligation to make lease payments arising from the lease. Leases with the duration of less than 12
months are not recognized on the balance sheet and are expensed on a straight-line basis over the lease term.
F-18
Lease cancellation
In October 2012, the Company entered into a lease for its corporate office and warehouse located in San Diego, California. The term of the lease, as
amended, had a term through July 2023. On September 22, 2021, the Company entered into an agreement with the landlord to terminate the lease for this
corporate office and warehouse space effective October 31, 2021. At September 22, 2021, the Company had recorded a right of use asset of $269,706, a
lease deposit of $10,470, and an operating lease liability of $282,597, respectively, related to this lease. Pursuant to the termination agreement, the
Company agreed to forfeit its security deposit, and pay the landlord an early termination fee of $108,527 before October 31, 2021 and vacate the premises
before October 31, 2021, in exchange for a complete release. The Company vacated the leased space on October 29, 2021. At September 30, 2021, the
Company accounted for the cancellation of the lease by writing off the right-of-use asset and the forfeited lease deposit from the consolidated balance sheet
which resulted in an impairment expense of $280,176. Upon payment of the early termination fee of $108,527 in October 2021, the operating lease liability
of approximately $270,000 was cancelled in full, which resulted in a gain on lease cancellation of $173,699. The net loss on the lease termination of
$106,477 is presented on a separate line item on the accompanying consolidated statement of operations for the year ended December 31, 2021.
In July, 2021 the Company entered into a month-to-month lease for its primary corporate office space located in Houston, Texas, with lease payments of
approximately $1,700 per month.
During the years ended December 31, 2021 and 2020, lease expense totaled approximately $148,826 and $45,000, respectively.
As of December 31, 2021, the Company’s net right of use asset totaled $24,257. During the years ended December 31, 2021 and December 31, 2020, the
Company recorded amortization of right-of-use asset of $124,627 and $79,328, respectively.
As of December 31, 2021, the Company’s operating lease liabilities totaled $26,029. During the year ended December 31, 2021, the Company made
payments of $148,826 towards the operating lease liability.
As of December 31, 2021, the weighted average remaining lease terms for operating leases are 1.17 years, and the weighted average discount rate for
operating lease is 3.9%.
Future minimum lease payments under the leases are as follows:
Year ending
2022
2023
Total lease payments
Less: Imputed interest/present value discount
Present value of lease liabilities
Less Current portion
8. Settlement with Former Officer
Operating Leases
$
$
22,843
3,826
26,669
(641)
26,028
(22,221)
3,807
Effective June 15, 2020, Michael Favish resigned as Chief Executive Officer and as an employee of the Company and resigned from the Company’s Board
of Directors. Terms of the settlement agreement between the parties included the continuation of his previous salary of $325,000 during the twelve months
subsequent to his resignation. The $325,000 of aggregate settlement payments was recorded in costs related to resignation of former officer expense in the
accompanying consolidated statements of operations for the year ended December 31, 2020. The final payment due the former officer was made on June
15, 2021.
F-19
9. Warrant Liability
On April 9, 2019, the Company issued 10,417 warrants with an exercise price of $30.00 per share to the underwriter in connection with the Company’s
IPO. The Company accounted for these warrants as a derivative liability in the financial statements at June 30, 2019 because they were associated with the
IPO, a registered offering, and the settlement provisions contained language that the shares underlying the warrants are required to be registered. The fair
value of the warrants is remeasured at each reporting period, and the change in the fair value is recognized in earnings in the accompanying statements of
operations. At December 31, 2020, the fair value of the derivative warrant liability was $25,978.
Effective January 1, 2021, the Company early adopted ASU 2020-06 using the modified retrospective approach. ASU 2020-06 removed the requirement to
consider if the warrants would be settled in registered shares, and accordingly, the adoption of ASU 2020-06 resulted in a decrease to accumulated deficit
of $25,978 and a decrease in derivative warrant liability of $25,978 on January 1, 2021.
At December 31, 2020, the fair value of such warrant was determined to be $259,878 using the Black-Scholes option pricing model utilizing the following
assumptions:
Stock price
Risk free interest rate
Expected volatility
Expected life in years
Expected dividend yield
Number of warrants
Fair value of derivative warrant liability
Warrant Liability As of
December 31, 2020
2.49
0.17%
148%
3.8
0%
10,417
25,978
For the year ended December 31, 2020, an increase in fair value of the warrants was determined to be approximately $12,655. There was no change in fair
value of warrants during the year ended December 31, 2021.
10. Stockholders’ Equity
Common Stock
The Company’s common stock has a par value of $.001. As of December 31, 2021 and 2020, there were 250,000,000 shares authorized, and 24,426,993
and 15,170,628 shares of common stock outstanding.
January 2021 and February 2021 at the Market Offerings
On January 8, 2021, the Company entered into a sales agreement with Maxim Group LLC (“Maxim”) pursuant to which the Company could sell up to
$10,000,000 worth of shares of the Company’s common stock in an “at the market” offering through Maxim (the “January 2021 1st ATM Offering”). The
offer and sale of the shares was made pursuant to a shelf registration statement on Form S-3. The Company agreed to pay Maxim a commission equal to
3.0% of the aggregate gross proceeds from each sale of shares. On January 15, 2021, the Company completed the January 2021 1st ATM Offering,
pursuant to which the Company sold an aggregate of 2,559,834 shares of its common stock and raised net proceeds (after deduction for sales commissions)
of approximately $9,700,000.
On January 28, 2021, the Company entered into a sales agreement with Maxim pursuant to which the Company could sell up to $25,000,000 worth of
shares of the Company’s common stock in an “at the market” offering through Maxim (the “January 2021 2nd ATM Offering”). On February 10, 2021, the
Company completed the January 2021 2nd ATM Offering, pursuant to which the Company sold an aggregate of 5,048,840 shares of its common stock and
raised net proceeds (after deduction for sales commissions) of approximately $24,250,000.
The Company incurred costs related to these financings of approximately $327,000 which is reflected as a reduction to the proceeds from the shares issued.
The net cash received from both offerings after all expenses was approximately $33,623,000.
F-20
Warrants
A summary of the Company’s warrant activity is as follows:
December 31, 2019
Granted
Forfeitures
Expirations
Exercised
December 31, 2020
Granted
Forfeitures
Expirations
Exercised
December 31, 2021, all exercisable
Weighted
Average
Exercise
Price
Weighted
Average
Remaining
Contractual
Term (Years)
2.28
-
-
(9.00)
(2.04)
2.40
2.26
2.71
4.91
-
-
-
-
3.81
-
2.71
Shares
4,800,456 $
-
-
(10,830)
(2,656,868)
2,132,758 $
(1,647,691)
485,067
The exercise prices of warrants outstanding and exercisable as of December 31, 2021 are as follows:
Warrants Outstanding and
Exercisable (Shares)
Exercise Prices
160,108 $
146,667
112,001
37,700
18,174
10,417
485,067
2.05
2.67
3.30
3.51
17.25
30.00
During the year ended December 31, 2021, investors exercised warrants exercisable into 1,647,691 shares of common stock for total proceeds of
approximately $3,568,415. The warrants were exercisable at $2.26 per share.
During the year ended December 31, 2020, investors exercised warrants exercisable into 2,656,868 shares of common stock for total proceeds of
approximately $5,452,000. The warrants were exercisable at $2.05 per share.
As of December 31, 2021, the Company had an aggregate of 485,067 outstanding warrants to purchase shares of its common stock. The aggregate intrinsic
value of warrants outstanding as of December 31, 2021 was $0.
Stock Options
A summary of the Company’s stock option activity is as follows:
December 31, 2019
Granted
Forfeitures
Expirations
Exercised
December 31, 2020
Granted
Forfeitures
Expirations
Exercised
December 31, 2021, outstanding
December 31, 2021, exercisable
Shares
Weighted Average
Exercise Price
Weighted Average
Remaining
Contractual Term
(Years)
493,750
423,333
(138,889)
-
-
778,194 $
311,006
(236,112)
-
-
853,088 $
549,910 $
13.56
5.58
-
-
-
9.48
2.70
-
26.40
-
6.34
8.01
3.64
9.51
-
-
-
6.38
9.3
-
-
-
6.5
5.2
The exercise prices of options outstanding and exercisable as of December 31, 2021 are as follows:
F-21
Options Outstanding (Shares) Options Exercisable (Shares)
Exercise Prices
41,667
41,667
50,000
66,668
5,000
41,667
1,667
16,667
152,671
208,333
104,167
1,041
112,500
853,088
20,833 $
41,667
-
8,344
5,000
41,667
1,667
12,501
-
191,962
104,167
1,041
112,500
549,910
0.91
1.48
1.61
1.76
1.91
2.33
2.46
3.25
3.95
6.00
12.00
13.80
15.00
The Company accounts for share-based payments in accordance with ASC 718 wherein grants are measured at the grant date fair value and charged to
operations over the vesting periods.
During the year ended December 31, 2021, the Company granted options to purchase 311,006 shares of common stock to six employees and members of
the Board of Directors with a grant date fair value determined to be $711,000 using a Black-Scholes option pricing model based on the following
assumptions: (i) volatility rate of 111% to 119%, (ii) discount rate of 0.38% to 1.28% (iii) zero expected dividend yield, and (iv) expected life of 5.13-6.01
years. The options have an exercise price of $0.91 to $3.95 per share. Options for 202,671 vest ratably over three years, options for 87,501 shares vest on a
quarterly basis over two years, and options for 20,834 shares vested immediately.
During the year ended December 31, 2020, the Company granted options to purchase 423,333 shares of common stock to the members of the Company’s
Board of Directors with a grant date fair value determined to be $1,033,510 using a Black-Scholes option pricing model based on the following
assumptions: (i) volatility rate of 142% to 148%, (ii) discount rate of 0.18%, (iii) zero expected dividend yield, and (iv) expected life of 5.25 years. The
options have an exercise price ranging from $0.91 per share to $6.00 per share. The options vest on a quarterly basis over two years beginning three months
after the grant date.
The Company computes stock price volatility over expected terms based on its historical common stock trading prices The risk-free interest rate was based
on rates established by the Federal Reserve Bank. The expected dividend yield was based on the fact that the Company has not paid dividends to its
common stockholders in the past and does not expect to pay dividends to its common stockholders in the future. The expected life of the stock options
granted is estimated using the “simplified” method, whereby the expected term equals the average of the vesting term and the original contractual term of
the stock option.
For the years ended December 31, 2021 and 2020, the Company recognized aggregate stock-compensation expense of approximately $601,000 and
$495,000, respectively, related to the fair value of vested options.
F-22
As of December 31, 2021, the Company had an aggregate of 314,150 remaining unvested options outstanding, with a remaining fair value of
approximately $284,388 to be amortized over an average of 5.2 years, weighted average exercise price of $8.01, and weighted average remaining life of 5.2
years. Based on the closing price of the Company’s common stock on December 31, 2021 of $0.65, the aggregate intrinsic value of options outstanding as
of December 31, 2021 was zero.
Settlement of stock options issued to former officer
In connection with a separation agreement entered into with Michael Favish, the Company’s former CEO (see Note 8), the expiration date of his vested
stock options was extended for twelve months from June 15, 2020. In accordance with ASC 718, the extension of the exercise period for the vested options
constitutes a modification of the original option agreement. In accounting for the modification, the Company calculated the fair value of the vested options
immediately before modification using current valuation inputs including the Company’s closing stock price of $2.94 on June 15, 2020, volatility of 142%,
and discount rate of 0.22%. The Company also calculated the fair value of the vested options immediately following the modification using the extended
12-month exercise period. An incremental stock compensation charge of $24,359 was recorded in costs related to resignation of former officer.
Mr. Favish’s unvested options of 138,889 at the time of his separation were forfeited. All compensation from prior periods related to these unvested options
was reversed, resulting in an adjustment to stock compensation expense during the year ended December 31, 2020 of $(965,295), which was recorded in
costs related to resignation of former officer.
Restricted Common Stock
Under the Company’s 2018 Equity Incentive Plan, a total of 1,666,667 shares of the Company’s common stock are available for grant to employees,
directors and consultants of the Company. During the year ended December 31, 2021, the Company issued 244,338 shares of the Company’s common stock
under the plan, and at December 31, 2021, there was a balance of 1,422,329 shares available for grant.
In January 2021, the Company granted 152,671 shares of the Company’s common stock to the Company’s Chief Executive Officer (“CEO”). The shares
vest on the first anniversary of the award. If the CEO’s employment with the Company is terminated for any reason, any shares not then vested will be
forfeited. Also effective in January 2021, the Company granted 41,667 shares of the Company’s common stock to a consultant for services, with 4,167 of
the shares vesting immediately and the balance of 37,500 shares vesting through August 15, 2021. In the event the consultant’s service with the Company
terminates, any shares not then vested will be forfeited. During the year ended December 31, 2021, the Company granted 50,000 shares of the Company’s
common stock with vesting terms to the Company’s Chief Commercial Officer. The shares vest one third per year for three years on the anniversary of the
award.
The total fair value of the 244,338 shares was determined to be approximately $743,000 based on the price per shares of the Company’s common stock on
the dates granted. The Company accounts for the share awards using the straight-line attribution or graded vesting method over the requisite service period
provided that the amount of compensation cost recognized at any date is no less than the portion of the grant-date fair value of the award that is vested at
that date. During the year ended December 31, 2021, total share-based expense recognized related to vested restricted shares totaled approximately
$669,000. At December 31, 2021, there was approximately $63,000 of unvested compensation related to these awards that will be amortized over a
remaining vesting period of 2.50 years.
The following table summarizes restricted common stock activity for the year ended December 31, 2021:
Non-vested shares, December 31, 2020
Granted
Vested
Forfeited
Non-vested shares, December 31, 2021
Number of
Shares
Fair value of shares
- $
244,338
(41,667)
-
202,671 $
-
3.38
1.41
-
3.38
F-23
11. Income Taxes
No federal tax provision has been provided for the years ended December 31, 2021 and 2020, due to the losses incurred during the periods. Reconciled
below is the difference between the income tax rate computed by applying the U.S. federal statutory rate and the effective tax rates for the years ended
December 31, 2021 and 20120:
U. S. federal statutory tax rate
State, net of federal benefit
Non-deductible goodwill impairment charge
Change in valuation allowance
Effective tax rate
Years Ended December 31,
2020
2021
(21.0)%
(7.0)%
-%
(28)%
28%
0.0%
(21.0)%
(7.0)%
-%
(28.0)%
28.0%
0.0%
Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. Significant components of the Company’s deferred tax assets as of December 31, 2021 and 2020
are summarized below.
Deferred tax assets
Net operating loss carryforwards
Stock-based compensation
Accrued expenses
Charitable contributions
Inventory reserves
Intangibles
Valuation allowance
Total deferred tax assets
Deferred tax liabilities
Allowance for doubtful accounts
Operating lease right of use asset
Research and development credit
Depreciation
Total deferred tax liabilities
Deferred taxes, net
$
December 31,
2021
2020
8,329,000 $
1,637,000
12,000
3,000
137,000
39,000
(10,126,000)
31,000
(4,000)
(1,000)
(13,000)
(13,000)
(31,000)
5,893,000
1,362,000
12,000
-
-
106,000
(7,299,000)
74,000
-
(4,000)
(13,000)
(57,000)
(74,000)
$
$
In assessing the potential realization of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred
tax assets will be realized. The ultimate realization of deferred tax assets is dependent upon the Company attaining future taxable income during the periods
in which those temporary differences become deductible. As of December 31, 2021, management was unable to determine if it is more likely than not that
the Company’s deferred tax assets will be realized and has therefore recorded an appropriate valuation allowance against deferred tax assets at such dates.
At December 31, 2021, the Company has available net operating loss carryforwards for federal income tax purposes of approximately $34,006,000 which,
if not utilized earlier, will begin to expire in 2035. Due to restrictions imposed by Internal Revenue Code Section 382 regarding substantial changes in
ownership of companies with loss carryforwards, the utilization of the Company’s NOLs may be limited as a result of changes in stock ownership.
The Company records a valuation allowance to reduce its deferred tax assets to the amount that is more likely than not to be realized. In the event the
Company determines that it would be able to realize its deferred tax assets in the future in excess of its recorded amount, an adjustment to the deferred tax
assets would be credited to operations in the period such determination was made. Likewise, should the Company determine that it would not be able to
realize all or part of its deferred tax assets in the future, an adjustment to the deferred tax assets would be charged to operations in the period such
determination was made.
F-24
The Company is subject to U.S. federal income taxes and income taxes of various state tax jurisdictions. As the Company’s net operating losses have yet to
be utilized, all previous tax years remain open to examination by Federal authorities and other jurisdictions in which the Company currently operates or has
operated in the past. The Company had no unrecognized tax benefits as of December 31, 2021 and 2020 and does not anticipate any material amount of
unrecognized tax benefits within the next 12 months.
The Company accounts for uncertainty in income tax law under a comprehensive model for the financial statement recognition, measurement, presentation
and disclosure of uncertain tax positions taken or expected to be taken in income tax returns as prescribed by GAAP. The tax effects of a position are
recognized only if it is “more-likely-than-not” to be sustained by the taxing authority as of the reporting date. If the tax position is not considered “more-
likely-than-not” to be sustained, then no benefits of the position are recognized. As of December 31, 2021, the Company had not recorded any liability for
uncertain tax positions. In subsequent periods, any interest and penalties related to uncertain tax positions will be recognized as a component of income tax
expense.
12. Related Party Transactions
Dr. Evans, together with his spouse, wholly owns Ceatus Media Group LLC, a California limited liability company (“Ceatus”), founded in 2004
specializing in digital marketing in the eye health care sector. The Company paid Ceatus approximately $96,000 in 2020 and approximately $51,000 in
2021, for services related to digital marketing for the Company.
Dr. Evans, together with his spouse, wholly owns DWT Evans LLC, an Ohio limited liability company (“DWT”), founded in 2000 which holds several
pieces of real estate. One of these holdings includes real property in Greenville, Ohio where the Company’s subsidiary, VectorVision Ocular Health, leases
office and warehouse space. The Company paid DWT rent in the amounts of approximately $22,174 and $20,000 in 2021 and 2020, respectively.
13. Commitments and Contingencies
The Company is periodically the subject of various pending or threatened legal actions and claims arising out of its operations in the normal course of
business. In the opinion of management of the Company, adequate provision has been made in the Company’s financial statements at December 31, 2021
and December 31, 2020 with respect to any such matters.
The Company is not currently a party to any material legal proceedings and is not aware of any pending or threatened legal proceeding against the
Company that the Company believes could have a material adverse effect on its business, operating results, cash flows or financial condition.
Effective January 6, 2021, the Board of Directors appointed Bret Scholtes as President, Chief Executive Officer, and as a director of the Company. The
Company and Mr. Scholtes entered into an employment agreement pursuant to which Mr. Scholtes’ annual base salary is $400,000. The employment
agreement provides that Mr. Scholtes shall have an annual target cash bonus of no less than $400,000 based on performance objectives determined by the
Board of Directors.
Additionally, Mr. Scholtes shall be granted (i) stock options equal to 2% of the Company’s issued and outstanding shares of common stock on the date of
grant if the Company achieves certain specified performance objectives established by the Board of Directors for the Company’s fiscal years ending
December 31, 2021, and December 31, 2022, and (ii) additional stock options equal to either 2% or 3% of the Company’s issued and outstanding shares of
common stock on the date of grant if the Company meets certain financial objectives during the first five years following January 6, 2021. If Mr. Scholtes’
employment is terminated by the Company without cause, as defined under his employment agreement, if the term expires after a notice of non-renewal is
delivered by the Company, or if Mr. Scholtes’ employment is terminated following a change of control, as defined, Mr. Scholtes will be entitled to (a)
twelve months’ base salary, (b) the prorated portion of the any bonus, based on actual performance, and (c) base salary and benefits accrued through the
date of termination.
F-25
NASDAQ Notice
On January 25, 2022, Guardion Health Sciences, Inc. (the “Company”) received a written notice from the NASDAQ Stock Market LLC (“Nasdaq”) that
the Company has not been in compliance with the minimum bid price requirement set forth in Nasdaq Listing Rule 5550(a)(2) for a period of 30
consecutive business days. Nasdaq Listing Rule 5550(a)(2) requires listed securities to maintain a minimum closing bid price of $1.00 per share, and
Nasdaq Listing Rule 5810(c)(3)(A) provides that a failure to meet the minimum closing bid price requirement exists if the deficiency continues for a period
of 30 consecutive business days. The Notice has no immediate effect on the listing of the Company’s common stock on the Nasdaq Capital Market.
In accordance with Nasdaq Listing Rule 5810(c)(3)(A), the Company is provided a compliance period of 180 calendar days from the date of the Notice, or
until July 25, 2022, to regain compliance with the minimum closing bid price requirement. If the Company does not regain compliance during the
compliance period ending July 25, 2022, the Company may be afforded a second 180 calendar day period to regain compliance. To qualify for the second
compliance period, the Company must (i) meet the continued listing requirement for market value of publicly-held shares and all other initial listing
standards for the Nasdaq Capital Market, with the exception of the minimum closing bid price requirement and (ii) notify Nasdaq of its intent to cure the
deficiency. The Company can achieve compliance with the minimum closing bid price requirement if, during either compliance period, the minimum
closing bid price per share of the Company’s common stock is at least $1.00 for a minimum of 10 consecutive business days. The Company anticipates that
its shares of common stock will continue to be listed and traded on the Nasdaq Capital Market during the compliance period(s).
The Company plans to carefully assess potential actions to regain compliance. However, the Company may be unable to regain compliance with the
minimum closing bid price requirement during the compliance period(s), in which case the Company anticipates Nasdaq would provide a notice to the
Company that its shares of common stock are subject to delisting, and the Company’s common shares would thereupon be delisted.
14. Subsequent Events
The Company performed an evaluation of subsequent events through the date of filing of these consolidated financial statements with the SEC. Other than
the matter described below, there were no material subsequent events which affected, or could affect, the amounts or disclosures in the consolidated
financial statements.
On February 18, 2022, the Company, entered into a securities purchase agreement with certain institutional investors, pursuant to which the Company sold
(i) 32,550,000 shares of common stock, (ii) Series A Warrants to purchase 37,000,000 shares of common stock, (iii) Series B Warrants to purchase
37,000,000 shares of common stock and (iv) Pre-Funded Warrants to purchase 4,450,000 shares of common stock. On February 23, 2022, the offering
closed, and the net proceeds to the Company, after deducting offering expenses, were approximately $10 million. In the event that the Company fails to
deliver shares by the required delivery date upon exercise of the warrants, the Company may be subject to cash penalties in an amount up to $20 per trading
day for each $1,000 of warrant shares until such shares are delivered. In addition, if the warrant holder purchases shares in the market following the
Company’s failure to deliver shares upon exercise of the warrants, the Company will be required to cover the cost of any buy-ins and, at the option of the
warrant holder, either reinstate the portion of the warrant for the shares that were not delivered or deliver the number of shares that should have been
issued.
F-26
INDEX TO EXHIBITS
Exhibit No.
3.1
Description
Delaware Certificate of Incorporation and amendment thereto (filed with the Company’s Registration Statement on Form S-1 filed with
3.2
3.3
3.4
3.5
4.1*
4.2
4.3
4.4
4.5
the SEC on February 11, 2016 and incorporated herein by reference)
Certificate of Amendment to Certificate of Incorporation (filed with the Company’s Current Report Form 8-K on February 1, 2019 and
incorporated herein by reference)
Certificate of Amendment to Certificate of Incorporation (filed with the Company’s Current Report on Form 8-K filed with the SEC on
December 10, 2019 and incorporated herein by reference)
Second Amended and Restated Bylaws (incorporated by reference to Exhibit 3.1 to the Company’s Current Report on Form 8-K filed
with the SEC on October 22, 2019)
Amendment No. 1 to Second Amended and Restated Bylaws (incorporated by reference to Exhibit 3.1 to the Company’s Current
Report on Form 8-K filed with the SEC on February 14, 2022)
Description of Securities
Form of Series A/B Warrant (incorporated by reference to Exhibit 4.1 to the Company’s Current Report on Form 8-K filed with the
SEC on February 23, 2022)
Form of Pre-Funded Warrant (incorporated by reference to Exhibit 4.2 to the Company’s Current Report on Form 8-K filed with the
SEC on February 23, 2022)
Form of Placement Agent Warrant (incorporated by reference to Exhibit 4.3 to the Company’s Current Report on Form 8-K filed with
the SEC on February 23, 2022)
Warrant Agency Agreement dated as of February 23, 2022, by and between Guardion Health Sciences, Inc., and V Stock Transfer, LLC
(incorporated by reference to Exhibit 4.4 to the Company’s Current Report on Form 8-K filed with the SEC on February 23, 2022)
10.1+
Form of Indemnification Agreement (filed with the Company’s Registration Statement on Form S-1 filed with the SEC on February 11,
2016 and incorporated herein by reference)
10.2
10.3
Intellectual Property Assignment Agreement with David W. Evans and VectorVision, Inc. dated as of September 29, 2017 (filed with
the Company’s Current Report on Form 8-K on October 5, 2017 and incorporated herein by reference)
Consulting Agreement with David W. Evans dated as of September 29, 2017 (filed with the Company’s Current Report on Form 8-K on
October 5, 2017 and incorporated herein by reference)
10.4+
Guardion Health Sciences, Inc. 2018 Equity Incentive Plan (filed with the Company’s Definitive Proxy Statement on Schedule 14A on
10.5
10.6
10.7+
10.8
10.9+
October 22, 2018 and incorporated herein by reference)
Warrant Agreement, including form of Warrant, made as of August 15, 2019, between the Company and VStock Transfer LLC
(incorporated by reference to Exhibit 10.3 to the Company’s Current Report on Form 8-K filed with the SEC on August 19, 2019)
Warrant Agreement, including form of Series B Warrant, made as of October 30, 2019, between the Company and VStock
(incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed with the SEC on October 31, 2019)
Employment Agreement, by and between the Company and Bret Scholtes (incorporated by reference to Exhibit 10.1 to the Company’s
Current Report on Form 8-K filed with the SEC on December 29, 2020)
Equity Purchase Agreement, dated May 18, 2021, by and among the Company, Adare Pharmaceuticals, Inc., and Activ Nutritional,
LLC (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed with the SEC on May 21, 2021)
Employment Agreement by and between the Company and Jeffrey Benjamin dated July 29, 2021 (incorporated by reference to Exhibit
10.1 to the Company’s Current Report on Form 8-K filed with the SEC on August 2, 2021)
10.10+
Employment Agreement by and between the Company and Craig Sheehan dated June 1, 2021 (incorporated by reference to Exhibit
10.11
10.12
10.13
21.1*
23.1*
24.1*
31.1*
31.2*
32.1*
10.2 to the Company’s Quarterly Report on Form 10-Q, filed with the SEC on August 16, 2021)
Lease Termination Agreement by and between the Company and Cal-Sorrento, Ltd. dated September 22, 2021 (incorporated by
reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed with the SEC on September 23, 2021)
Form of Securities Purchase Agreement (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed
with the SEC on February 23, 2022)
Placement Agency Agreement dated as of February 18, 2022, by and among Guardion Health Sciences, Inc., Roth Capital Partners,
LLC and Maxim Group LLC (incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K filed with the
SEC on February 23, 2022)
List of Subsidiaries
Consent of Weinberg & Company
Power of Attorney (included on signature page hereto)
Certification of the Principal Executive Officer pursuant to Rule 13a-14(a) of the Exchange Act, as adopted pursuant to Section 302 of
the Sarbanes-Oxley Act of 2002
Certification of Principal Financial Officer pursuant to Rule 13a-14(a) of the Exchange Act, as adopted pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002
Certification of Principal Executive Officer and Principal Financial Officer pursuant to Rule 13a-14(b) of the Exchange Act and 18
U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
101.INS*
101.SCH*
101.CAL*
101.LAB*
101.PRE*
101.DEF*
104*
Inline XBRL Instance Document
Inline XBRL Taxonomy Extension Schema Document
Inline XBRL Taxonomy Extension Calculation Linkbase Document
Inline XBRL Taxonomy Extension Label Linkbase Document
Inline XBRL Taxonomy Extension Presentation Linkbase Document
Inline XBRL Taxonomy Extension Definition Linkbase Document
Cover Page Interactive Data File – the cover page of the Registrant’s Annual Report on Form 10-K for the year ended December 31,
2021 is formatted in Inline XBRL
* filed herewith
+ Indicates a management contract or any compensatory plan, contract or arrangement.
-56-
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this Report to be signed on its
behalf by the undersigned, thereunto duly authorized on the 31st day of March 2022.
SIGNATURES
GUARDION HEALTH SCIENCES, INC.
/s/ Bret Scholtes
Bret Scholtes
Chief Executive Officer
(Principal Executive Officer)
POWER OF ATTORNEY
Pursuant to the requirements of the Securities Exchange Act of 1934, this Report has been signed by the following persons in the capacities and on the
dates indicated.
Signature
/s/ Bret Scholtes
Bret Scholtes
/s/ Jeffrey Benjamin
Jeffrey Benjamin
/s/ Craig Sheehan
Craig Sheehan
/s/ Robert N. Weingarten
Robert N. Weingarten
/s/ Mark Goldstone
Mark Goldstone
/s/ David W. Evans
David W. Evans
/s/ Donald A. Gagliano
Donald A. Gagliano
/s/ Michaela Griggs
Michaela Griggs
Title
Date
CEO, President and
Director (Principal Executive Officer)
March 31, 2022
Chief Accounting Officer
March 31, 2022
(Principal Financial and Accounting Officer)
Chief Commercial Officer
March 31, 2022
Chairman of the Board of Directors
March 31, 2022
Director
Director
Director
Director
-57-
March 31, 2022
March 31, 2022
March 31, 2022
March 31, 2022
DESCRIPTION OF THE REGISTRANT’S SECURITIES
REGISTERED PURSUANT TO SECTION 12 OF THE
SECURITIES EXCHANGE ACT OF 1934
EXHIBIT 4.1
As of December 31, 2021, Guardion Health Sciences, Inc. (“the Company”) had one class of securities registered under Section 12 of the
Securities Exchange Act of 1934, as amended (the “Exchange Act”)—our common stock, par value $0.001 per share (“Common Stock”).
Description of Common Stock
The following description of the Company’s Common Stock is a summary and does not purport to be complete. It is subject to and qualified in its
entirety by reference to the Company’s Certificate of Incorporation, as amended (the “Certificate of Incorporation”) and the Company’s Bylaws (the
“Bylaws”), each of which are incorporated by reference as an exhibit to the Annual Report on Form 10-K of which this Exhibit 4.2 is a part. The Company
encourages you to read its Certificate of Incorporation, Bylaws, and the applicable provisions of the Delaware General Corporation Law for additional
information.
Authorized Capital Shares
The Company’s authorized capital shares consist of 250,000,000 shares of Common Stock, $0.001 par value per share, and 10,000,000 shares of
preferred stock, $0.001 par value per share (“Preferred Stock”). As of December 31, 2021, there were 24,426,993 shares of Common Stock issued and
outstanding. There were no shares of Preferred Stock issued or outstanding as of December 31, 2021.
Voting Rights
Holders of the Company’s Common Stock are entitled to one vote per share on all matters voted on by the stockholders, including the election of
directors. The Company’s Certificate of Incorporation and Bylaws do not provide for cumulative voting in the election of directors.
Dividend Rights
Holders of the Company’s Common Stock are entitled to receive dividends, if any, as may be declared from time to time by the Board of Directors
(the “Board”) in its discretion out of funds legally available for the payment of dividends subject to the prior rights of holders of Preferred Stock and any
contractual restrictions the Company has against the payment of dividends on Common Stock.
Liquidation Rights
In the event of the Company’s liquidation, the holders of the Company’s Common Stock will be entitled to share ratably in any distribution of the
Company’s assets after payment of all debts and other liabilities and the preferences payable to holders of shares of the Company’s Preferred Stock then
outstanding, if any.
Applicable Anti-Takeover Provisions
Set forth below is a summary of the provisions of the Company’s Certificate of Incorporation and the Bylaws that could have the effect of
delaying or preventing a change in control of the Company. The following description is only a summary and it is qualified by refence to the Certificate of
Incorporation, the Bylaws and relevant provisions of the Delaware General Corporation Law (“DGCL”).
Board of Director Vacancies
The Company’s Bylaws authorize only its board of directors to fill vacant directorships. In addition, the number of directors constituting the
Company’s board of directors may be set only by the Board.
Ability of Stockholders to Call Special Meetings
The Company’s Bylaws provide that stockholders can only call a special meeting if stockholders holding over 50% of all issued and outstanding
shares of the Company entitled to vote at a meeting do so.
Advance Notice Requirements
The Company’s Bylaws establish advance notice procedures with regard to stockholder proposals relating to the nomination of candidates for
election as directors or new business to be brought before meetings of stockholders. These procedures provide that notice of such stockholder proposals
must be timely given in writing to the Secretary of the Company prior to the meeting at which the action is to be taken. The notice must contain certain
information specified in our Bylaws.
Blank Check Preferred Stock
The Company’s Certificate of Incorporation provides for 10,000,000 authorized shares of “blank check” preferred stock, the terms of which may
be determined by the Board without obtaining stockholder approval. Undesignated or “blank check” preferred stock may enable the Board to render more
difficult or to discourage an attempt to obtain control of the Company by means of a tender offer, proxy contest, merger or otherwise, and to thereby protect
the continuity of the Company’s management.
Exclusive Forum
In accordance with an exclusive forum provision set forth in the Company’s Bylaws, unless the Company consents in writing to the selection of an
alternative forum, the Court of Chancery of the State of Delaware shall be the sole and exclusive forum for (a) any derivative action or proceeding brought
on behalf of the Company, (b) any action asserting a claim of breach of a fiduciary duty owed by any director, officer or other employee of the Company to
the Company or the Company’s stockholders, (c) any action asserting a claim arising pursuant to any provision of the DGCL, or (d) any action asserting a
claim governed by the internal affairs doctrine.
Listing
The Company’s Common Stock is traded on the Nasdaq Capital Market under the trading symbol “GHSI”.
Transfer Agent
The Company’s transfer agent is VStock Transfer, LLC whose address is 18 Lafayette Pl., Woodmere, NY 11598.
Name
State or Other Jurisdiction of Incorporation
LIST OF SUBSIDIARIES OF GUARDION HEALTH SCIENCES, INC.
VectorVision Ocular Health, Inc.
Transcranial Doppler Solutions, Inc.
NutriGuard Formulations, Inc.
Viactiv Nutrititionals, Inc.
Delaware
Delaware
Delaware
Delaware
EXHIBIT 21.1
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We consent to the incorporation by reference in the Registration Statements on Forms S-1 (No. 333-232544, No. 333-234322 and No. 333-233067), Form
S-3 (No. 333-248895), and Form S-8 (No. 333-231603 and No. 333-255077) of Guardion Health Sciences, Inc. of our report dated March 31, 2022, with
respect to the consolidated financial statements of Guardion Health Sciences, Inc. of December 31, 2021 and 2020, and for the years then ended, included
in this Annual Report on Form 10-K for the year ended December 31, 2021.
EXHIBIT 23.1
/s/ Weinberg & Company, P.A.
Los Angeles, California
March 31, 2022
EXHIBIT 31.1
CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER OF GUARDION HEALTH SCIENCES, INC.
PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Bret Scholtes, certify that:
1.
2.
3.
4.
I have reviewed this Annual Report on Form 10-K of Guardion Health Sciences, Inc;
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the
statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this
report;
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the
financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-
15(f)) for the registrant and have:
(a)
(b)
(c)
(d)
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our
supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by
others within those entities, particularly during the period in which this report is being prepared;
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our
supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for
external purposes in accordance with generally accepted accounting principles;
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the
effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most
recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably
likely to materially affect, the registrant’s internal control over financial reporting; and
5.
The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to
the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
(a)
(b)
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are
reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal
control over financial reporting.
Date: March 31, 2022
/s/ Bret Scholtes
Bret Scholtes
Chief Executive Officer
(Principal Executive Officer)
EXHIBIT 31.2
CERTIFICATION OR PRINCIPAL FINANCIAL OFFICER OF GUARDION HEALTH SCIENCES, INC.
PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Jeffrey Benjamin, certify that:
1.
2.
3.
4.
I have reviewed this Annual Report on Form 10-K of Guardion Health Sciences, Inc;
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the
statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this
report;
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the
financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-
15(f)) for the registrant and have:
(a)
(b)
(c)
(d)
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our
supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by
others within those entities, particularly during the period in which this report is being prepared;
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our
supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for
external purposes in accordance with generally accepted accounting principles;
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the
effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most
recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably
likely to materially affect, the registrant’s internal control over financial reporting; and
5.
The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to
the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
(a)
(b)
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are
reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal
control over financial reporting.
Date: March 31, 2022
/s/ Jeffrey Benjamin
Jeffrey Benjamin
Chief Accounting Officer
(Principal Financial and Accounting Officer)
CERTIFICATIONS PURSUANT TO
18 U.S.C. SECTION 1350,
AS ENACTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
EXHIBIT 32.1
Pursuant to Section 1350 of Title 18 of the United States Code as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, the undersigned,
Bret Scholtes and Jeffrey Benjamin, the Chief Executive Officer and Chief Accounting Officer, respectively, of Guardion Health Sciences, Inc. (the
“Company”), hereby certify that based on the undersigned’s knowledge:
(1)
(2)
March 31, 2022
March 31, 2022
The Company’s Annual Report on Form 10-K for the period ended December 31, 2021 (the “Report”) fully complies with the
requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the
Company.
/s/ Bret Scholtes
Bret Scholtes
Chief Executive Officer
(Principal Executive Officer)
/s/ Jeffrey Benjamin
Jeffrey Benjamin
Chief Accounting Officer
(Principal Financial and Accounting Officer)