Notes
to Condensed Consolidated Financial Statements
(Unaudited)
Three
Months Ended March 31, 2020 and 2019
1.
|
Organization
and Business Operations
|
Organization
and Business
Guardion
Health Sciences, Inc. (the “Company”) was formed in December 2009 as a California limited liability company under
the name P4L Health Sciences, LLC. On June 30, 2015, the Company converted from a California limited liability company to a Delaware
corporation, changing its name from Guardion Health Sciences, LLC to Guardion Health Sciences, Inc.
The
Company is a specialty health sciences company (1) that has developed medical foods and medical devices in the ocular health space
and (2) that is developing nutraceuticals that the Company believes will provide supportive health benefits to consumers.
The
Company has been primarily engaged in research and development, product commercialization and capital raising activities.
Going
Concern and Liquidity
The
financial statements have been prepared assuming the Company will continue as a going concern. The Company had a net loss of $2,346,913
and utilized cash in operating activities of $1,735,410 during the three months ended March 31, 2020. The Company expects to continue
to incur net losses and negative operating cash flows in the near-term. As a result, management has concluded that there is substantial
doubt about the Company’s ability to continue as a going concern within one year of the date that the consolidated financial
statements are issued.
The
Company’s independent registered public accounting firm has also included explanatory language in their opinion accompanying
the Company’s audited financial statements for the year ended December 31, 2019, stating there is substantial doubt about
the Company’s ability to continue as a going concern. The financial statements do not include any adjustments to reflect
the possible future effects on the recoverability and classification of assets or the amounts and classifications of liabilities
that may result from the possible inability of the Company to continue as a going concern.
The
Company will continue to incur significant expenses for commercialization activities related to its medical foods, nutraceuticals,
the MapcatSF medical device, VectorVision diagnostic equipment, the TDSI business and with respect to efforts to continue to build
the Company’s infrastructure. Development and commercialization of medical foods, nutraceuticals and medical devices involves
a lengthy and complex process. Additionally, the Company’s long-term viability and growth may depend upon the successful
development and commercialization of new complementary products or product lines.
The
Company is seeking 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. 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 as a result of the COVID-19 pandemic. The extent of the impact of the COVID-19 pandemic
on the Company’s business is highly uncertain and difficult to predict, as the responses that the Company, other businesses
and governments are taking continue to evolve. Furthermore, capital markets and economies worldwide have also been negatively
impacted by the COVID-19 pandemic, and it is possible that it could cause a local and/or global economic recession. Policymakers
around the globe have responded with fiscal policy actions to support the healthcare industry and economy as a whole. The magnitude
and overall effectiveness of these actions remain uncertain.
To
date, we have not experienced any significant changes in our business that would have a significant negative impact on our consolidated
statements of operations or cash flows.
The
severity of the impact of the COVID-19 pandemic on the Company’s business will depend on a number of factors, including,
but not limited to, the duration and severity of the pandemic and the extent and severity of the impact on the Company’s
customers, service providers and suppliers, all of which are uncertain and cannot be predicted. As of the date of issuance of
Company’s financial statements, the extent to which the COVID-19 pandemic may in the future materially impact the Company’s
financial condition, liquidity or results of operations is uncertain.
NASDAQ
Notice
On
September 20, 2019, the Company received a notification letter from the Nasdaq Listing Qualifications Staff (the “Staff”)
of the Nasdaq Stock Market LLC (“Nasdaq”) notifying the Company that, for the last 30 consecutive business days, the
closing bid price for the Company’s common stock was below the minimum $1.00 per share requirement for continued listing
on The Nasdaq Capital Market as set forth in Nasdaq Listing Rule 5550(a)(2) (the “Minimum Bid Price Requirement”).
The Nasdaq letter has no immediate effect on the listing of the Company’s common stock on the Nasdaq Capital Market.
In
accordance with Nasdaq listing rules, the Company was provided an initial period of 180 calendar days, or until March 18, 2020,
to regain compliance with the Minimum Bid Price Requirement. The Company was unable to regain compliance with the Minimum Bid
Price Requirement during the initial period and was eligible for an additional 180 calendar day compliance period. The Company
provided written notice of its intention to cure the deficiency during the additional compliance period, and on
March 19, 2020, the Company received a written notification from Nasdaq that the Company has been granted an additional 180 calendar
days, or until September 14, 2020, to regain compliance with the minimum bid price requirement.
The
current COVID-19 crisis has created unprecedented turmoil in U.S. and world financial markets and has significantly impacted investor
confidence. Given these extraordinary market conditions, Nasdaq has determined to toll the compliance periods for bid price and
market value of publicly held shares through June 30, 2020 (the “Price-based Requirements”).
Accordingly,
since the Company had 152 calendar days remaining in its bid price compliance period as of April 16, 2020, it will, upon reinstatement
of the Price-based Requirements, still have 152 calendar days from July 1, 2020, or until November 30, 2020, to regain compliance.
The Company can regain compliance, either during the suspension or during the compliance period resuming after the suspension,
by evidencing compliance with the Price-based Requirements for a minimum of 10 consecutive trading days.
2.
|
Summary of Significant
Accounting Policies
|
Basis
of Presentation
The
accompanying condensed consolidated financial statements are unaudited. These unaudited interim condensed consolidated financial
statements have been prepared in accordance with accounting principles generally accepted in the United States (“GAAP”)
and applicable rules and regulations of the Securities and Exchange Commission (“SEC”) regarding interim financial
reporting. Certain information and note disclosures normally included in the financial statements prepared in accordance with
GAAP have been condensed or omitted pursuant to such rules and regulations. Accordingly, these interim condensed consolidated
financial statements should be read in conjunction with the consolidated financial statements and notes thereto contained in the
Company’s Annual Report on Form 10-K for the year ended December 31, 2019 filed with the SEC. The condensed consolidated
balance sheet as of December 31, 2019 included herein was derived from the audited consolidated financial statements as of that
date, but does not include all disclosures, including notes, required by GAAP.
In
the opinion of management, the accompanying unaudited condensed consolidated financial statements contain all adjustments necessary
to fairly present the Company’s financial position and results of operations for the interim periods reflected. Except as
noted, all adjustments contained herein are of a normal recurring nature. The results of operations for the interim periods presented
are not necessarily indicative of the results of operations to be expected for the full fiscal year ending December 31, 2020.
Use
of Estimates
The
preparation of the 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.
Significant
estimates include those related to assumptions used in valuing assets acquired in business acquisitions, impairment testing of
goodwill and other long-term assets, accruals for potential liabilities, valuing equity instruments issued during the period,
and realization of deferred tax assets.
Revenue
Recognition
The
Company’s revenue is comprised of sales of medical foods, nutraceuticals and dietary supplements to consumers through a
direct sales/credit card process. In addition, the Company sells medical device equipment and supplies to customers both in the
U.S. and internationally.
The
Company recognizes revenue in accordance with ASU 2014-09, Revenue from Contracts with Customers (Topic 606) (“ASU
2014-09” or “Topic 606”) and all related amendments. The standard provides authoritative guidance clarifying
the principles for recognizing revenue and developing a common revenue standard for U.S. generally accepted accounting principles.
The core principle of the guidance is that an entity should recognize revenue to depict the transfer of promised goods and services
to customers in an amount that reflects the consideration to which the entity expects to be entitled in the exchange for those
goods or services.
Under
the guidance, revenue is recognized when control of promised goods or services is transferred to the Company’s customers,
in an amount that reflects the consideration the Company expects to be entitled to in exchange for those goods or services. The
Company reviews its sales transactions to identify contractual rights, performance obligations, and transaction prices, including
the allocation of prices to separate performance obligations, if applicable. Revenue and costs of sales are recognized once products
are delivered to the customer’s control and performance obligations are satisfied.
All
products sold by the Company are distinct individual products and consist of medical foods, supplemental formulas, medical devices
and related supplies. The products 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.
Control
of products sold transfers to customers upon shipment from the Company’s facilities, and the Company’s performance
obligations are satisfied at that 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 the Company has not experienced any significant payment delays from
customers.
The
Company provides a 30-day right of return to its retail Lumega-Z customers. 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 Lumega-Z and VectorVision product returns, the Company determined that less than one
percent of products is returned, and therefore believes 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.
The
following table presents the Company’s revenues disaggregated by segment:
|
|
Three Months Ended March 31,
|
|
|
|
2020
|
|
|
2019
|
|
Medical Foods
|
|
$
|
139,789
|
|
|
$
|
99,934
|
|
Medical Devices
|
|
|
91,190
|
|
|
|
142,604
|
|
Other
|
|
|
14,744
|
|
|
|
-
|
|
Total
|
|
$
|
245,723
|
|
|
$
|
242,538
|
|
All
of the Company’s Medical Foods revenues are derived from individual retail customers in North America. Medical Devices revenues
are derived from a worldwide customer base consisting of both retail customers and distributors. International customers contributed
approximately 91% and 20% of Medical Devices revenues for the three months ended March 31, 2020 and 2019, respectively. Distributors
contributed approximately 63% and 15% of Medical Devices revenues for the three months ended March 31, 2020 and 2019, respectively.
During
February 2020, the Company contracted with a Malaysian company to develop an immune-supportive formula for its consumer base.
An initial order was placed for $875,000, and in connection with this order, on March 31, 2020, the Malaysian company paid $437,500
as a deposit for this order. The deposit is recorded as a current liability on our condensed consolidated balance sheet at March
31, 2020. The Company currently anticipates shipping the order during the second quarter of 2020.
Research
and Development Costs
Research
and development costs consist primarily of fees paid to consultants and outside service providers, patent fees and costs, and
other expenses relating to the acquisition, design, development and testing of the Company’s medical foods and related products.
Research and development expenditures are expensed as incurred and totaled $31,188 and $29,028 for the three months ended March
31, 2020 and 2019, respectively.
Patent
Costs
The
Company is the owner of three issued domestic patents, three pending domestic patent applications, one issued foreign patent in
Europe, one issued foreign patent in Hong Kong, and three foreign patent applications in Canada, Europe and 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 three months ended March 31, 2020 and 2019, patent costs
were $27,181 and $29,025, respectively, and are included in general and administrative costs in the statements of operations.
Stock-Based
Compensation
The
Company periodically issues 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, employees, and for acquiring goods and services from nonemployees, which include grants of employee
stock options, are recognized in the financial statements based on their fair values in accordance with Topic 718. Stock option
grants, which are generally time vested, will be 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.
Net
Loss per Share
The
Company’s computation of basic and diluted net loss per common share is measured as net loss divided by the weighted average
common shares outstanding during the respective periods, excluding unvested restricted common stock. Shares of restricted stock
are included in the basic weighted average number of common shares outstanding from the time they vest. Potential common shares
such as from unexercised warrants and options that have an anti-dilutive effect are excluded from the calculation of diluted net
loss per share. 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 conversion of convertible debt outstanding are anti-dilutive as they decrease loss per
share.
The
following table sets forth the number of shares excluded from the computation of diluted loss per share, as their inclusion would
have been anti-dilutive:
|
|
March 31,
|
|
|
|
2020
|
|
|
2019
|
|
Warrants
|
|
|
18,390,338
|
|
|
|
896,712
|
|
Options
|
|
|
3,252,500
|
|
|
|
1,362,500
|
|
|
|
|
21,642,838
|
|
|
|
2,259,212
|
|
Fair
Value Measurements
Assets
and liabilities recorded at fair value on the balance sheets are categorized based upon the level of judgment associated with
the inputs used to measure the fair value. Level inputs are as follows:
Level
1 – quoted prices in active markets for identical assets or liabilities.
Level
2 – other significant observable inputs for the assets or liabilities through corroboration with market data at the measurement
date.
Level
3 – significant unobservable inputs that reflect management’s best estimate of what market participants would use
to price the assets or liabilities at the measurement date.
We
consider carrying amounts of accounts receivable, accounts payable and accrued expenses to approximate fair value due to the short-term
nature of these financial instruments. Our non-financial assets are measured at fair value when there is an indicator
of impairment and recorded at fair value only when an impairment charge is recognized.
Recent
Accounting Pronouncements
In
December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes (“ASU 2019-12”),
which is intended to simplify the accounting for income taxes. ASU 2019-12 removes certain exceptions to the general principles
in Topic 740 and also clarifies and amends existing guidance to improve consistent application. The new standard will be effective
beginning January 1, 2021. The Company is assessing the impact ASU 2019-12 will have on its consolidated financial statements.
In
June 2016, the FASB issued ASU No. 2016-13, Credit Losses - Measurement of Credit Losses on Financial Instruments (“ASC
326”). 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, the standard will be effective for us for interim and
annual reporting periods beginning after December 15, 2022. The Company is currently assessing the impact of adopting this standard
on the Company’s financial statements and related disclosures.
The
Company’s management does not believe that there are any recently issued, but not yet effective, authoritative guidance,
if currently adopted, would have a material impact on the Company’s financial statement presentation or disclosures.
3.
|
Acquisition of
NutriGuard
|
Effective
September 20, 2019 (the “Effective Date”), the Company’s newly-formed wholly-owned subsidiary, NutriGuard Formulations,
Inc., a Delaware corporation, completed an asset purchase agreement (the “Asset Purchase Agreement”) with NutriGuard
Research, Inc., a California corporation (“NutriGuard”), and NutriGuard’s sole shareholder, Mark McCarty.
Pursuant
to the Asset Purchase Agreement, the Company purchased specified assets of the NutriGuard brand and business, consisting primarily
of inventory, trademarks, copyrights and other intellectual property. In exchange, the Company agreed to pay a 3% royalty, payable
quarterly, to NutriGuard based on the operating results of the NutriGuard branded products in future periods, after $500,000 in
gross revenues have been achieved by the Company. As of March 31, 2020 and December 31, 2019 no amounts were owed or accrued to
NutriGuard.
The
following preliminary unaudited pro forma financial information gives effect to the Company’s acquisition of NutriGuard
as if the acquisition had occurred on January 1, 2018 and had been included in the Company’s consolidated statements of
operations during the three months ended March 31, 2019:
|
|
Three Months Ended March 31,
|
|
|
|
2019
|
|
Pro forma net revenues
|
|
$
|
267,680
|
|
Pro forma net loss attributable to common shareholders
|
|
$
|
(1,403,851
|
)
|
Pro forma net loss per share
|
|
$
|
(0.07
|
)
|
Inventories
consisted of the following:
|
|
March 31,
|
|
|
December 31,
|
|
|
|
2020
|
|
|
2019
|
|
Raw materials
|
|
$
|
542,849
|
|
|
$
|
246,875
|
|
Finished goods
|
|
|
216,236
|
|
|
|
64,066
|
|
|
|
$
|
759,085
|
|
|
$
|
310,941
|
|
5.
|
Property and
Equipment, net
|
Property
and equipment consisted of the following:
|
|
March 31,
|
|
|
December 31,
|
|
|
|
2020
|
|
|
2019
|
|
Leasehold improvements
|
|
$
|
98,357
|
|
|
$
|
98,357
|
|
Testing equipment
|
|
|
412,429
|
|
|
|
394,427
|
|
Furniture and fixtures
|
|
|
199,132
|
|
|
|
185,799
|
|
Computer equipment
|
|
|
68,460
|
|
|
|
68,460
|
|
Office equipment
|
|
|
8,193
|
|
|
|
8,193
|
|
|
|
|
786,571
|
|
|
|
755,236
|
|
Less accumulated depreciation and amortization
|
|
|
(403,085
|
)
|
|
|
(380,598
|
)
|
|
|
$
|
383,486
|
|
|
$
|
374,638
|
|
For
the Three Months Ended March 31, 2020 and 2019, depreciation and amortization expense was $23,114 and $14,443, respectively, of
which $12,856 and $5,198 was included in research and development expense, $3,910 and $3,910 was included in sales and marketing
expense, and $6,348 and $5,335 was included in general and administrative expense, respectively.
In
October 2012, the Company entered into a lease agreement for 9,605 square feet of office and warehouse space commencing March
1, 2013. Upon entering into the agreement, the Company paid a deposit of $47,449, of which $36,979 represented prepaid rent. As
of March 31, 2020, $11,751 remained on deposit under the lease agreement. The lease (“Lease 1”) was renewed for an
additional five years in 2018. As of March 31, 2020, remaining lease payments under the amended lease agreement averaged $13,048
per month through July 2023.
In
connection with the VectorVision acquisition on September 29, 2017, the Company assumed a lease agreement for 5,000 square feet
of office and warehouse space which commenced on October 1, 2017. The lease (“Lease 2”) was renewed for an additional
65 months. As of March 31, 2020, remaining lease payments averaged $1,859 per month through February 2023.
The
leases have been accounted for in accordance with ASC 842, which requires a lessee to record a right-of-use asset and a corresponding
lease liability at the inception of the lease initially measured at the present value of the lease payments. The Company classified
the leases as operating leases and determined that the fair value of Lease 1 at the inception of the lease was $639,520 using
a discount rate of 3.9% and the fair value of Lease 2 at the inception of the lease was $81,634 using a discount rate of 3.9%.
The
aggregate balance of the lease liabilities at December 31, 2019 was $586,315. During the three months ended March 31, 2020, the
Company made combined payments on both leases of $42,400 towards the lease liabilities. As of March 31, 2020, the lease liability
for Lease 1 was $488,155, and the lease liability for Lease 2 was $61,358. The aggregate balance of the lease liabilities at March
31, 2020 was $549,513, of which $154,327 was current.
Combined
rent expense for both leases for the three months ended March 31, 2020 and 2019 was $43,581 and $43,581, respectively. The balance
of the right of use asset as of December 31, 2019 was $572,714. During the three months ended March 31, 2020, the Company reflected
amortization of right of use asset of $37,984 related to the leases, resulting in a net asset balance of $534,730 as of March
31, 2020.
Common
Stock
During
the three months ended March 31, 2020, the Company issued 25,000 fully vested shares of common stock for services rendered and
recognized $12,325 in stock compensation expense related to these shares.
Warrants
A
summary of the Company’s warrant activity is as follows:
|
|
Shares
|
|
|
Weighted
Average
Exercise Price
|
|
|
Weighted
Average
Remaining
Contractual
Term (Years)
|
|
December 31, 2019
|
|
|
28,802,738
|
|
|
|
0.38
|
|
|
|
4.91
|
|
Granted
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Forfeitures
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Expirations
|
|
|
(30,000
|
)
|
|
|
(1.50
|
)
|
|
|
-
|
|
Exercised
|
|
|
(10,382,400
|
)
|
|
|
(0.34
|
)
|
|
|
-
|
|
March 31, 2020, all exercisable
|
|
|
18,390,338
|
|
|
$
|
0.40
|
|
|
|
4.65
|
|
The
exercise prices of warrants outstanding and exercisable as of March 31, 2020 are as follows:
Warrants Outstanding and
Exercisable (Shares)
|
|
|
Exercise Prices
|
|
|
14,957,600
|
|
|
$
|
0.34
|
|
|
1,960,000
|
|
|
|
0.44
|
|
|
1,040,000
|
|
|
|
0.50
|
|
|
226,200
|
|
|
|
0.59
|
|
|
35,000
|
|
|
|
1.50
|
|
|
109,038
|
|
|
|
2.88
|
|
|
62,500
|
|
|
|
5.00
|
|
|
18,390,338
|
|
|
|
|
|
During
the three months ended March 31, 2020, investors exercised a total of 10,382,400 warrants for 10,382,400 shares of common stock.
The warrants were exercisable for $0.34 per share, which resulted in cash proceeds to the Company of $3,550,781.
As
of March 31, 2020, the Company had an aggregate of 18,390,338 outstanding warrants to purchase shares of its common stock with
a weighted average exercise price of $0.40 and a weighted average remaining life of 4.65 years. The aggregate intrinsic value
of warrants outstanding as of March 31, 2020 was $1,712,273.
Warrant
Liability
On
April 9, 2019, the Company issued 62,500 warrants with an exercise price of $5.00 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. The fair value
of the warrants at December 31, 2019 was $13,323. As of March 31, 2020, the fair value of the warrants was determined to be $22,267
and the change in fair value of $8,944 was recognized in the accompanying statements of operations.
The
fair value of the warrant liability was determined at the following reporting dates using the Black-Scholes-Merton option pricing
model and the following assumptions:
|
|
Warrant Liability As of
|
|
|
Warrant Liability
As of
|
|
|
|
March 31, 2020
|
|
|
December 31, 2019
|
|
Stock price
|
|
$
|
0.46
|
|
|
$
|
0.22
|
|
Risk free interest rate
|
|
|
0.29
|
%
|
|
|
1.62
|
%
|
Expected volatility
|
|
|
143
|
%
|
|
|
145
|
%
|
Expected life in years
|
|
|
4.01
|
|
|
|
4.26
|
|
Expected dividend yield
|
|
|
0
|
%
|
|
|
0
|
%
|
Number of warrants
|
|
|
62,500
|
|
|
|
62,500
|
|
Fair value of warrants
|
|
$
|
22,267
|
|
|
$
|
13,323
|
|
Stock
Options
A
summary of the Company’s stock option activity is as follows:
|
|
Shares
|
|
|
Weighted
Average
Exercise Price
|
|
|
Weighted
Average
Remaining
Contractual
Term (Years)
|
|
December 31, 2019
|
|
|
2,962,500
|
|
|
|
2.94
|
|
|
|
3.64
|
|
Granted
|
|
|
290,000
|
|
|
|
-
|
|
|
|
-
|
|
Forfeitures
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Expirations
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Exercised
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
March 31, 2020, outstanding
|
|
|
3,252,500
|
|
|
$
|
2.71
|
|
|
|
3.96
|
|
March 31, 2020, exercisable
|
|
|
1,991,667
|
|
|
$
|
2.50
|
|
|
|
3.13
|
|
The
exercise prices of options outstanding and exercisable as of March 31, 2020 are as follows:
Options Outstanding
(Shares)
|
|
|
Options Exercisable
(Shares)
|
|
|
Exercise Prices
|
|
|
250,000
|
|
|
|
156,250
|
|
|
$
|
0.25
|
|
|
30,000
|
|
|
|
-
|
|
|
|
0.32
|
|
|
250,000
|
|
|
|
31,250
|
|
|
|
0.39
|
|
|
10,000
|
|
|
|
-
|
|
|
|
0.41
|
|
|
100,000
|
|
|
|
25,000
|
|
|
|
0.54
|
|
|
625,000
|
|
|
|
625,000
|
|
|
|
2.00
|
|
|
62,500
|
|
|
|
62,500
|
|
|
|
2.30
|
|
|
675,000
|
|
|
|
675,000
|
|
|
|
2.50
|
|
|
1,250,000
|
|
|
|
416,667
|
|
|
|
4.40
|
|
|
3,252,500
|
|
|
|
1,991,667
|
|
|
|
|
|
During
the three months ended March 31, 2020, the Company granted options to purchase 290,000 shares of common stock to five employees
with a grant date fair value of $110,887. The options have an exercise price of $0.32 to $0.41 per share. 250,000 of the options
vest on a quarterly basis over two years and 40,000 options vest in full six months after the grant date.
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 Three Months Ended March 31, 2020 and 2019, we recognized aggregate
stock-compensation expense of $503,893 and $56,231, based upon stock prices ranging from $0.25 to $3.30 per share respectively,
and of which $436,287 related to options granted to our chairman and CEO. Of the stock compensation expense recognized during
the three months ended March 31, 2020, $36,902 was recorded to sales and marketing expense and $466,991 was recorded in general
and administrative expense. All of the stock compensation expense recognized during the three months ended March 31, 2019 was
recorded in general and administrative expense.
As
of March 31, 2020, the Company had an aggregate of 1,260,833 remaining unvested options outstanding, with a fair value of $2,910,828,
weighted average exercise price of $3.04, and weighted average remaining life of 5.27 years. The aggregate intrinsic value of
options outstanding as of March 31, 2020 was $73,185. The aggregate intrinsic value of unvested options outstanding as of March
31, 2020 was $38,544.
8.
|
Related Party
Transactions
|
During
the three months ended March 31, 2020 and 2019, the Company incurred and paid $81,250 and $75,000, respectively, of salary expense
to our Board Chairman and CEO, Mr. Michael Favish. In addition, compensation cost of $436,287 was recognized on amortization of
stock option awards during the three months ended March 31, 2020. During the three months ended March 31, 2020 and 2019, the Company
incurred and paid salaries of $28,750 and $28,750, respectively, to Karen Favish, spouse of Michael Favish. During the three months
ended March 31, 2020 and 2019, the Company incurred and paid salaries of $15,000 and $13,750, respectively, to Kristine Townsend,
spouse of Controller and Chief Accounting Officer John Townsend.
The
Company determined its reporting units in accordance with ASC 280, “Segment Reporting” (“ASC 280”). The
Company historically has reported its operating results as a single reportable segment described as the business of developing
and commercializing a variety of products that support the detection, intervention and monitoring of a range of eye diseases.
The Company’s chief executive officer, who is the Chief Operating Decision Maker (“CODM”), has historically
reviewed financial information on an aggregated basis for purposes of allocating resources and evaluating financial performance.
In
September 2017, the Company, through its wholly-owned subsidiary VectorVision Ocular Health, Inc., acquired substantially all
of the assets and certain liabilities of VectorVision, Inc., a company that specialized in the standardization of contrast sensitivity,
glare sensitivity, low contrast acuity, and early treatment diabetic retinopathy study visual acuity testing. In August 2018,
the Company created a wholly owned subsidiary, Transcranial Doppler Solutions, Inc. (“TDSI”). The Company has established
TDSI operations with selected clinics and is focusing on expanding its client base. In September 2019, the Company’s newly-formed
wholly-owned subsidiary, NutriGuard Formulations, Inc. (“NGFI”), completed an asset purchase agreement with NutriGuard
Research, Inc., and NutriGuard’s sole shareholder, Mark McCarty. The Company intends to utilize the NGFI subsidiary to build
a nutraceutical brand and product portfolio based on updated and reformulated compounds.
The
addition of potential new products or services as the Company grows requires management to periodically reevaluate its reporting
structure. As sales of our medical foods as well as sales of VectorVision products grow, there is an increased need for the CODM
to evaluate revenue and gross profit on a product line or group basis for purposes of resource allocation. As of March 31, 2020,
the TDSI and NGFI subsidiaries do not meet the required quantitative criteria to be considered a reportable operating segment.
Additionally, these subsidiaries do not share similar economic characteristics or a majority of the aggregation criteria set forth
in ASC 280, and therefore are included in the category “Corporate” below. The TDSI and NGFI businesses earned $3,400
and $11,344 of service revenue, respectively, and incurred approximately $84,483 and $22,995 of operating costs, respectively,
during the three months ended March 31, 2020. As of March 31, 2020, based on anticipated growth and the expanding diversity of
product and service offerings by the Company, management has concluded that results should be reported in two segments: Medical
Foods and Medical Devices. The following tables set forth our results of operations by segment (results allocated to Corporate
consist of the TDSI and NGFI operations):
|
|
For the Three Months Ended March 31, 2020
|
|
|
|
Corporate
|
|
|
Medical Foods
|
|
|
Medical Devices
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
$
|
14,744
|
|
|
$
|
139,789
|
|
|
$
|
91,190
|
|
|
$
|
245,723
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of goods sold
|
|
|
2,270
|
|
|
|
66,196
|
|
|
|
40,642
|
|
|
|
109,108
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
12,474
|
|
|
|
73,593
|
|
|
|
50,548
|
|
|
|
136,615
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses
|
|
|
107,478
|
|
|
|
2,248,909
|
|
|
|
116,450
|
|
|
|
2,472,837
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from operations
|
|
$
|
(95,004
|
)
|
|
$
|
(2,175,316
|
)
|
|
$
|
(65,902
|
)
|
|
$
|
(2,336,222
|
)
|
|
|
For the Three Months Ended March 31, 2019
|
|
|
|
Corporate
|
|
|
Medical Foods
|
|
|
Medical Devices
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
$
|
-
|
|
|
$
|
99,934
|
|
|
$
|
142,604
|
|
|
$
|
242,538
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of goods sold
|
|
|
-
|
|
|
|
38,272
|
|
|
|
55,220
|
|
|
|
93,492
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
-
|
|
|
|
61,662
|
|
|
|
87,384
|
|
|
|
149,046
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses
|
|
|
48,763
|
|
|
|
1,076,744
|
|
|
|
205,032
|
|
|
|
1,330,539
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from operations
|
|
$
|
(48,763
|
)
|
|
$
|
(1,015,082
|
)
|
|
$
|
(117,648
|
)
|
|
$
|
(1,181,493
|
)
|
The
following tables set forth our total assets by segment. Intersegment balances and transactions have been removed:
|
|
As of March 31, 2020
|
|
|
|
Corporate
|
|
|
Medical Foods
|
|
|
Medical Devices
|
|
|
Total
|
|
Current assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
|
|
$
|
12,890,140
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
12,890,140
|
|
Inventories
|
|
|
157,557
|
|
|
|
243,992
|
|
|
|
357,536
|
|
|
|
759,085
|
|
Other
|
|
|
266,663
|
|
|
|
340,849
|
|
|
|
46,530
|
|
|
|
654,042
|
|
Total current assets
|
|
|
13,314,360
|
|
|
|
584,841
|
|
|
|
404,066
|
|
|
|
14,303,267
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Right of use asset, net
|
|
|
-
|
|
|
|
476,187
|
|
|
|
58,543
|
|
|
|
534,730
|
|
Property and equipment, net
|
|
|
-
|
|
|
|
247,205
|
|
|
|
136,281
|
|
|
|
383,486
|
|
Intangible assets, net
|
|
|
-
|
|
|
|
50,000
|
|
|
|
-
|
|
|
|
50,000
|
|
Other
|
|
|
-
|
|
|
|
11,751
|
|
|
|
-
|
|
|
|
11,751
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
13,314,360
|
|
|
$
|
1,369,984
|
|
|
$
|
598,890
|
|
|
$
|
15,283,234
|
|
|
|
As of December 31, 2019
|
|
|
|
Corporate
|
|
|
Medical Foods
|
|
|
Medical Devices
|
|
|
Total
|
|
Current assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
|
|
$
|
11,115,502
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
11,115,502
|
|
Inventories
|
|
|
5,003
|
|
|
|
126,708
|
|
|
|
179,230
|
|
|
|
310,941
|
|
Other
|
|
|
7,399
|
|
|
|
219,223
|
|
|
|
214,653
|
|
|
|
441,275
|
|
Total current assets
|
|
|
11,127,904
|
|
|
|
345,931
|
|
|
|
393,883
|
|
|
|
11,867,718
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Right of use asset
|
|
|
-
|
|
|
|
509,464
|
|
|
|
63,250
|
|
|
|
572,714
|
|
Property and equipment, net
|
|
|
-
|
|
|
|
219,056
|
|
|
|
155,582
|
|
|
|
374,638
|
|
Intangible assets, net
|
|
|
-
|
|
|
|
50,000
|
|
|
|
-
|
|
|
|
50,000
|
|
Other
|
|
|
-
|
|
|
|
11,751
|
|
|
|
-
|
|
|
|
11,751
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
11,127,904
|
|
|
$
|
1,136,202
|
|
|
$
|
612,715
|
|
|
$
|
12,876,821
|
|
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 March 31, 2020 with respect to such matters.
On
April 14, 2020, investors exercised warrants for 150,000 shares of common stock. The warrants were exercisable for $0.34 per share,
and the Company received net proceeds of $51,300 in cash.
On
April 15, 2020, investors exercised warrants for 80,000 shares of common stock. The warrants were exercisable for $0.34 per share,
and the Company received net proceeds of $27,360 in cash.